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Assessing the Credibility of a Target Zone: Evidence from EMS Countries

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  • Tronzano, Marco
  • Psaradakis, Zacharias
  • Sola, Martin

Abstract

This paper proposes a Bayesian extension of Svensson's (1991) test of target zone credibility. The credibility measures considered allow us to quantify the target zone's overall credibility at each point in time as well as a measure of long-run credibility. In an application of the new methodology to three European Monetary System (EMS) countries (France, Italy and the UK), using data up to 1993, we find significant anticipatory signals of the September 1992 currency crisis. We also find a strong correlation between various macroeconomic variables and the proposed credibility measure. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 5 (2000)
Issue (Month): 2 (April)
Pages: 107-20

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Handle: RePEc:ijf:ijfiec:v:5:y:2000:i:2:p:107-20

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Cited by:
  1. Peter Tillmann, 2003. "The Regime-Dependent Determination of Credibility: A New Look at European Interest Rate Differentials," German Economic Review, Verein für Socialpolitik, vol. 4, pages 409-431, November.
  2. Gianni Amisano & Marco Tronzano, 2005. "Assessing ECB?s Credibility During the First Years of the Eurosystem: A Bayesian Empirical Investigation," Working Papers ubs0512, University of Brescia, Department of Economics.
  3. Laurence Fung & Ip-wing Yu, 2007. "Assessing the Credibility of The Convertibility Zone of The Hong Kong Dollar," Working Papers 0719, Hong Kong Monetary Authority.

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