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The `New' EMS

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Author Info
Giavazzi, Francesco
Spaventa, Luigi

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Abstract

This paper attempts to provide an interpretation of recent developments in the EMS. The System has evolved from a regime of adjustable, frequently adjusted parities, where capital controls provided a shelter to weaker currencies, to one where this shelter is being removed, in advance of Stage two of the Delors proposals. An understanding seems to have been reached that exchange rate realignments would be made only in exceptional circumstances. The paper sheds some light on the reasons why financial liberalization seems to have strengthened, rather than weakened the EMS, but it also explains why many in Europe today argue that the EMS with fixed exchange rates and free capital mobility may be unstable. Our findings are at odds with the expected consequences of a shift to more fixed exchange rates when inflation differentials persist and there are no capital controls.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 369.

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Date of creation: Jan 1990
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Handle: RePEc:cpr:ceprdp:369

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Related research
Keywords: Capital Controls; Economic And Monetary Union; European Monetary System;

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  1. Crowley, Patrick, 2008. "One Money, Several Cycles? Evaluation of European business cycles using model-based cluster analysis," Research Discussion Papers 3/2008, Bank of Finland. [Downloadable!]
  2. Ignazio Angeloni & Luca Dedola, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 4, European Central Bank. [Downloadable!]
    Other versions:
  3. Nikolina Kosteletou & Panagiotis Liargovas, 2000. "Foreign Direct Investment and Real Exchange Rate Interlinkages," Open Economies Review, Springer, vol. 11(2), pages 135-148, April. [Downloadable!] (restricted)
  4. Mark Artis, 1993. "The Role of the Exchange Rate in Monetary Policy - the Experience of Other Countries," RBA Annual Conference Volume, in: Adrian Blundell-Wignall (ed.), The Exchange Rate, International Trade and the Balance of Payments Reserve Bank of Australia. [Downloadable!]
  5. Lars E.O. Svensson, 1994. "Fixed Exchange Rates as a Means to Price Stability: What Have We Learned," NBER Working Papers 4504, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Volz, Ulrich, 2005. "Pegs, Baskets, and the Importance of Policy Credibility: Lessons of the 1992-92 ERM Crisis," Discussion Paper Series 26238, Hamburg Institute of International Economics. [Downloadable!]
  7. Allan Drazen, 1997. "Policy Signaling in the Open Economy: A Re-Examination," NBER Working Papers 5892, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Patrick Honohan & Charles Conroy, 1994. "Liquidity and Irish Interest Rates," Papers WP052, Economic and Social Research Institute (ESRI). [Downloadable!]
  9. Bettina Becker & Stephen G. Hall, 2007. "A New Look at Economic Convergence in Europe: A Common Factor Approach," Discussion Paper Series 2007_09, Department of Economics, Loughborough University, revised Feb 2007. [Downloadable!]
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  10. Nikiforos Laopodis, 2001. "International Interest-Rate Transmission and the “German Dominance Hypothesis†Within EMS," Open Economies Review, Springer, vol. 12(4), pages 347-377, October. [Downloadable!] (restricted)
  11. Patrick Artus, 1998. "La politique budgétaire en union monétaire et les critères de Maastricht," Annales d'Economie et de Statistique, ADRES, issue 51, pages 06, Juillet-S. [Downloadable!]
  12. Michele Fratianni & Michael Artis, 1996. "The lira and the pound in the 1992 currency crisis: Fundamentals or speculation?," Open Economies Review, Springer, vol. 7(1), pages 573-589, March. [Downloadable!] (restricted)
  13. Arghyrou, Michael G & Gadea, Maria Dolores, 2008. "The single monetary policy and domestic macro-fundamentals: Evidence from Spain," Cardiff Economics Working Papers E2008/23, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
  14. Jean Pisany-Ferry, 1994. "Union monetaire et convergence : qu'avons nous appris ?," Working Papers 1994-14, CEPII research center. [Downloadable!]
  15. Paolo Giovane & Lorenzo Bini-Smashi, 1996. "Convergence of inflation: A necessary prerequisite for EMU?," Open Economies Review, Springer, vol. 7(2), pages 117-126, April. [Downloadable!] (restricted)
  16. Hali J. Edison & Linda S. Kole, 1994. "European monetary arrangements: implications for the dollar, exchange rate variability and credibility," International Finance Discussion Papers 468, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  17. Michel Aglietta & Merih Uctum, 1996. "Europe and the Maastricht challenge," Research Paper 9616, Federal Reserve Bank of New York. [Downloadable!]
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