The European Monetary System: Achievements and Survival
AbstractThe EMS's robustness in the face of stochastic shocks is studied, using the Liverpool World Model and the optimal strategy algorithm of Brandsma and Hughes Hallett. The EMS began life in 1979 with a system design permitting regular parity changes; we find this design to be relatively unstable, even without monetary policy reaction, and potentially highly unstable under Nash non-cooperative monetary policy, essentially because EMS countries that should be followers make over-active use of monetary policy and parity changes. Tough exchange controls (clearly some temporary controls are a practical requirement for EMS survival in times of parity crisis) do not reduce instability, indeed can make it worse. However, monetary cooperation between EMS member removes much of the instability for EMS members; limiting parity change on its own does not help. Floating with non-cooperative monetary policy remains more stable than any EMS regime, for both the EMS and non-EMS groups of countries. The paper offers an explanation, based on institutional survival and evolution, of the changes in the EMS's mode of operation since 1979.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 502.
Date of creation: Jan 1991
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Agnès Bénassy-Quéré & Benoît Mojon, 1998. "EMU and Transatlantic Exchange Rate Stability," Working Papers 1998-02, CEPII research center.
- George Tavlas, 1994. "The theory of monetary integration," Open Economies Review, Springer, vol. 5(2), pages 211-230, March.
- Wieland, Volker, 1996. "Monetary policy targets and the stabilization objective: a source of tension in the EMS," Journal of International Money and Finance, Elsevier, vol. 15(1), pages 95-116, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.