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The European Exchange Rate Mechanism and the Volatility of the Sterling-Deutschemark Exchange Rate

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  • Pesaran, B
  • Robinson, G
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    Abstract

    Sterling membership of the ERM focused interest on the sterling-deutsche mark exchange rate, with commentators predicting a reduction in exchange rate volatility. This paper analyzes the sterling-deutsche mark rate pre- and post-ERM entry, and finds that ERM membership significantly reduced volatility. This reduction in volatility is characterized by the disappearance of ARCH effects, evident prior to ERM membership. The paper argues that the disappearance of ARCH is probably associated with a reduction in activity of speculators, particularly technical analysts. Copyright 1993 by Royal Economic Society.

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    Bibliographic Info

    Article provided by Royal Economic Society in its journal The Economic Journal.

    Volume (Year): 103 (1993)
    Issue (Month): 421 (November)
    Pages: 1418-31

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    Handle: RePEc:ecj:econjl:v:103:y:1993:i:421:p:1418-31

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    Cited by:
    1. repec:spo:wpecon:info:hdl:2441/2963 is not listed on IDEAS
    2. Jérôme Creel & Henri Sterdyniak, 1998. "Discussing Euro Volatility," Sciences Po publications 98-03, Sciences Po.
    3. Nolan, C. & Chadha, J.S., 1999. "Inflation Targeting, Transparency and Interest Rate Volatility: Ditching 'Monetary Mystique' in the UK," Cambridge Working Papers in Economics 9921, Faculty of Economics, University of Cambridge.
    4. Jérôme Creel & Henri Sterdyniak, 1998. "À propos de la volatilité de l'euro," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(2), pages 199-226.
    5. Fayolle, J. & Micolet, P-E., 1998. "Cycles internationaux et européens: éléments pour une problématique appliquée," Documents de Travail de l'OFCE 1998-01, Observatoire Francais des Conjonctures Economiques (OFCE).
    6. repec:spo:wpecon:info:hdl:2441/2973 is not listed on IDEAS

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