Given the influence that full exchange rate pass-through has, SBP monitors the foreign exchange market very closely. Finally, monetary policy may also influence inflation through the expectations channel. I can think of no better example to illustrate the mechanism of the expectations channel than Paul Volcker’s time at the helm of the Fed.
The overall atmosphere over this historical period was marked by a clear sense of optimism and a good deal of confidence on the part of the European Union and the countries that belonged to the Union or wished to join it. Not that there were no problems, but there was a feeling that these could be solved one way or another.