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April 1971

Controlling Money in an Open Economy: The German Case

by Manfred Willms

In recent years inflation has been a world-wide problem. To stem the tide of rising prices, stabilization authorities have called on all the economic tools available to them. During this period, there has been growing reliance on controlling growth of the money supplies of nations to prevent inflationary increases in total spending. However, it has been contended frequently that a country with a large foreign trade position could not effectively control its money stock in order to avoid “imported inflation.” This is particularly important if a relatively large country, such as the United States, has persistent inflation and balance-of-payments deficits.