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Is there a “triffin dilemma†for the EMS?

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Author Info
Lorenzo Bini-Smaghi
Silvia Vori
Abstract

The question explored in this paper is whether the EMS can continue to perform efficiently and ensure low inflation in an economically and financially integrated area with a high degree of currency substitution. A dilemma may arise: on the one hand, currency substitution should be accommodated to provide market participants with the currency they desire; on the other, currency substitution should not determine an excess of liquidity in the system leading to inflation. These objectives might be difficult to reconcile in a system with decentralized asymmetric monetary policy cooperation such as the EMS and might have adverse consequences for the monetary stability of the system. Copyright Kluwer Academic Publishers 1993

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File URL: http://hdl.handle.net/10.1007/BF01000518
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Publisher Info
Article provided by Springer in its journal Open Economies Review.

Volume (Year): 4 (1993)
Issue (Month): 2 (June)
Pages: 175-188
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Handle: RePEc:kap:openec:v:4:y:1993:i:2:p:175-188

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Related research
Keywords: currency substitution; EMS; cross-currency holding; monetary policy cooperation;

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References listed on IDEAS
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  1. McKinnon, Ronald I, 1982. "Currency Substitution and Instability in the World Dollar Standard," American Economic Review, American Economic Association, vol. 72(3), pages 320-33, June. [Downloadable!] (restricted)
  2. Daniel Gros & Timothy Lane, 1992. "Monetary policy interaction within or without an exchange-rate arrangement," Open Economies Review, Springer, vol. 3(1), pages 61-82, February. [Downloadable!] (restricted)
  3. Arthur J. Rolnick & Warren E. Weber, 1986. "Gresham's law or Gresham's fallacy?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 17-24. [Downloadable!]
  4. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May. [Downloadable!] (restricted)
  5. Feige, Edgar L & Pearce, Douglas K, 1977. "The Substitutability of Money and Near-Monies: A Survey of the Time-Series Evidence," Journal of Economic Literature, American Economic Association, vol. 15(2), pages 439-69, June. [Downloadable!] (restricted)
  6. Michael Woodford, 1990. "Does Competition Between Currencies Lead to Price Level and Exchange Rate Stability?," NBER Working Papers 3441, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-25, June. [Downloadable!] (restricted)
  8. Rolnick, Arthur J & Weber, Warren E, 1986. "Gresham's Law or Gresham's Fallacy?," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 185-99, February. [Downloadable!] (restricted)
  9. Melvin, Michael, 1985. "Currency Substitution and Western European Monetary Unification," Economica, London School of Economics and Political Science, vol. 52(205), pages 79-91, February. [Downloadable!] (restricted)
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