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The Credibility of the United Kingdom's Commitment to the Erm

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  • Paul R. Masson

Abstract

The paper presents estimates of a model of the credibility of the U.K. commitment to its central parity against the deutsche mark during the period of U.K. ERM membership (1990-92). The measure of credibility used is the long-term interest differential with Germany. Credibility is decomposed into two aspects: an assessment of whether the government was truly committed to the ERM, and the probability that even a committed government would be able to continue to bear the unemployment costs. Doubts about the first aspect—which could lead to a self-fulfilling crisis—are shown to have declined steadily during the period of ERM membership, while the second aspect is estimated to have become increasingly important, due to rising unemployment.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 94/147.

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Length: 32
Date of creation: 01 Dec 1994
Date of revision:
Handle: RePEc:imf:imfwpa:94/147

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Cited by:
  1. Schor, Armand-Denis, 2000. "La théorie des zones monétaires optimales : l’optimum, le praticable, le crédible et le réel," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 545-576, décembre.

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