Inconsistent macroeconomics

Comments on Yiping Huang “Focus upon the Chinese yuan on both sides of the Atlantic”, 12/08/2010, http://www.eastasiaforum.org/2010/08/12/focus-upon-the-chinese-yuan-on-both-sides-of-the-atlantic/
The point that PBOC should shift focus on to the basket of currencies from the $US is excellent. In fact, China should be much more transparent on the basket of currencies the yuan is managed to be pegged to.

It should publish the weight of each currency in the basket the yuan pegs to, at least the framework how it works or the central bank manage it. It is hard to understand why that can't or shouldn't be done.

While official statistics shows inflation has been low in China, has that been consistent with the reality and people's experiences? It is highly doubtful probably. It is likely that the real story about the Chinese real exchange may be different from the official statistics tells, with significant real appreciation than its nominal appreciation has suggested.

I would be very cautious in using deliberately higher inflation as a tool for exchange rate adjustment, because that is very dangerous with playing of expectations on inflation.

Of course, 1% annual inflation would be low, especially in the context of high economic growth. If that was true, it would mean there could be room to allow a modest inflation target.

An inherent inconsistency in macroeconomics is the policy for domestic price stability and the wild swings shown in international exchange rate market under the flexible exchange regime. Economists do not seem to have a consistent framework to deal with both domestic and international macroeconomic stabilities.

It is the same issue of market and the management of aggregate demand and supply, albeit with international borders involved.

Why is that difficult to do for managing international issues?

That is question economists have to realise, ask and answer.

Further, they need to come up with a satisfactory solution.

It should not be too difficult task for the economic profession.