Alan Walters has suggested that the European Monetary System will prove dynamically unstable when capital controls are removed. The argument is analyzed within a model where overlapping contracts generate price inertia. In this context, it is found that the short-run effects predicted by Walters only arise when the credibility of the peg differs as between the labor and financial markets: but even if such a difference exists, the system is stable in the long run. Copyright 1991 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Volume (Year): 59 (1991) Issue (Month): 0 (Supplement,) Pages: 23-37 Download reference. The following formats are available: HTML
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Handle: RePEc:bla:manch2:v:59:y:1991:i:0:p:23-37
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