Regimen changes and duration in the European Monetary System
AbstractThis paper examines the regime changes in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS), applying the duration model approach to weekly data of eight currencies participating in the ERM, covering the complete EMS history. When using the non-parametric (univariate) analysis, we found that for those regimens with long durations, the ERM would have been relatively stable, while for the (more common) regimes associated with short durations would have been more unstable. The probability of maintaining a certain regime is estimated to be 0.685. When applying a parametric (multivariate) analysis to investigate the role of other variables in the probability of a regime change, we conclude that the interest rate differential with Germany and the magnitude of the realignment would have negatively affected the duration of a given regime, while credibility would have positively influenced such duration. Finally, when distinguishing between groups of currencies, we observe that those in the core are more stable than those in the periphery, obtaining evidence against equality of survival functions among these groups of currencies.
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Bibliographic InfoPaper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 02-05.
Length: 32 pages
Date of creation: Dec 2002
Date of revision:
Duration models; exchange rates; European Monetary System;
Other versions of this item:
- S. Sosvilla-Rivero & R. Maroto-Illera, 2003. "Regimen changes and duration in the European Monetary System," Applied Economics, Taylor & Francis Journals, vol. 35(18), pages 1923-1933.
- Simon Sosvilla-Rivero & Reyes Maroto Illera, . "Regimen Changes and Duration in the European Monetary System," Working Papers on International Economics and Finance 02-05, FEDEA.
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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