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Nominal Exchange Rate Dynamics in the European Monetary System

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  • Michael G. Spencer

Abstract

The EMS is modeled as imposing dual reflecting barriers on the exchange rate process. This policy leads to a state-dependent conditional variance for exchange rate changes. This variance is always less than that under a pure free float regime. A method of Simulated Moments procedure is employed to estimate the parameters of the model. Simulations with the estimated parameter values show that the model predicts non-normality and non-stationarity in the distribution of exchange rate changes and that these characteristics diminish with aggregation.

Suggested Citation

  • Michael G. Spencer, 1990. "Nominal Exchange Rate Dynamics in the European Monetary System," Working Paper 779, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:779
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_779.pdf
    File Function: First version 1990
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    Cited by:

    1. Robert P. Flood & Donald J. Mathieson & Andrew K. Rose, 1990. "Is the EMS the perfect fix? An empirical exploration of exchange rate target zones," International Finance Discussion Papers 388, Board of Governors of the Federal Reserve System (U.S.).

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