. most practitioners and theorists would, i think, agree on two desirable characteristics of a monetary policy regime. first, policy needs to provide a nominal anchor for the economy : the policy regime must have the characteristic that it systematically resists excessive inflation or deflation, and thereby delivers a satisfactory degree of price stability in the long run. the second objective is to provide a degree of stabilisation in the short to medium term in response to shocks, which includes resisting adverse shocks to output and employment. this objective might be met either through the capacity of a regime to undertake deliberate policy responses when shocks occur, or through automatic stabilisers inherent in the regime. the fixed exchange rate period the longest lasting of the four regimes, by a large margin, was the fixed exchange rate, also known as the bretton woods system, or the gold exchange standard. at the start of the post - war period, the australian currency had already been fixed to sterling at an unchanged rate since 1931. subsequently, there were only two major changes to australia ’ s international parities until the 1970s : the first, in 1949, when australia followed a sterling devaluation against gold and the us dollar, and the second, in 1967, when sterling was further devalued, but australia did not follow. thus, australia ’ s exchange rate against sterling remained unchanged from 1931 to 1967, while the rate against the us dollar - - which is more important for current purposes - - was unchanged from 1949 to 1971. as was the case for most other countries, the bretton woods system of “ fixed but adjustable ” exchange rates was operated in practice in australia in the 1950s and 1960s as a firm commitment to fixed parities. the fixed exchange rate was effectively the linchpin of the monetary policy regime. while it is not possible to pinpoint an exact date at which this ceased to be the case, parity adjustments became much more frequent after the next australian dollar realignment occurred in 1971. rather than being the anchor of policy, the exchange rate henceforward was increasingly viewed as an adjustable policy instrument. there were six parity changes in the years from 1971 to the adoption of the crawling peg system in november 1976 ; and this more flexible system, in turn, gave way to the float in december 1983. the history can thus be characterised as involving essentially fixed parities up until 1971, followed by a gradual transition to greater flexibility and a stronger internal policy focus in the years that followed. an important characteristic of a

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