THE TRANSMISSION OF MONETARY-POLICY IN AN ENVIRONMENT OF DEREGULATION AND EXCHANGE-RATE STABILITY - THE FRENCH EXPERIENCE

French monetary policy relies both on exchange rate and monetary aggregate targeting. Hindsight has vindicated the choice of this original, two-pronged approach. The exchange rate target is one of stability vis-a-vis the best-performing currency in a heavily integrated trade area. Since 1979, it has brought down inflation expectations and enhanced competitiveness, as the real exchange rate has fallen of late. Domestic monetary targets have been maintained despite distortions in the wake of deregulation. M3 has been chosen, but its responsiveness to interest rates appears relatively limited. Greater emphasis has also been put on total domestic debt. When contradictions arose between the quantitative and the exchange rate targets, the latter was given precedence. In France, the interest rate mechanism impinges most directly on the corporate sector, while a lot of household debt carries fixed rates. Reserve requirement ratios have been maintained but cut to low levels since their implementation has become more difficult in a deregulated environment.