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ECU Bonds in a Two-Speed EMS: Private Markets and Political Constraints

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  • Klein, Martin

    (Wirtschaftswissenschaftliche Fakultät (Faculty of Economics) Martin-Luther-Universität)

Abstract

Under the existing statutes of the EMS the ECU is a « mixed hag » of economic and political elements. On the one hand it is simply a portfolio of EMS member currencies; on the other hand it is supposed to reflect the relative economic strength of the EMS members. The implicit conflict between these two aspects gives rise to periodical readjustments of the ECU basket. We analyze the behavior of ECU bond prices under basket readjustments that could be triggered by the evolution of the member currencies’ cross exchange rates. We discuss the problems that arise and develop a non-linear pricing formula that can be applied in this context.

Suggested Citation

  • Klein, Martin, 1991. "ECU Bonds in a Two-Speed EMS: Private Markets and Political Constraints," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 44(2-3), pages 191-209.
    • Handle: RePEc:ris:ecoint:0476
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