The fragility of two monetary regimes: The European Monetary System and the Eurozone
AbstractWe analyze the similarities and the differences in the fragility of the European Monetary System (EMS) and the Eurozone. We test the hypothesis that in the EMS the fragility arose from the absence of a credible lender of last resort in the foreign exchange markets while in the Eurozone it was the absence of a lender of last resort in the long-term government bond markets that caused the fragility. We conclude that in the EMS the national central banks were weak and fragile, and the national governments were insulated from this weakness by the fact that they kept their own national currencies. In the Eurozone the roles were reversed. The national central banks that became part of the Eurosystem were strengthened.
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Bibliographic InfoPaper provided by National Bank of Belgium in its series Working Paper Research with number 243.
Length: 41 pages
Date of creation: Oct 2013
Date of revision:
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government bond markets; interbank money market; interest rate spread; Eurozone; EMS; fragility;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
- NEP-CBA-2013-10-25 (Central Banking)
- NEP-EEC-2013-10-25 (European Economics)
- NEP-MAC-2013-10-25 (Macroeconomics)
- NEP-MON-2013-10-25 (Monetary Economics)
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- Gros, Daniel, 2014. "The EMS Crisis of the 1990s: Parallels with the present crisis?," CEPS Papers 9119, Centre for European Policy Studies.
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