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Britain'S Return To Gold And Impending Entry Into The Ems: Expectations, Joining Conditions And Credibility

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  • SUTHERLAND, A.
  • MILLER, M.

Abstract

In this paper the surprising conclusion of Smith and Smith (1990) that the prospect of Britain's return to Gold in 1925 had the effect of weakening sterling is subjected to critical analysis. It is shown that this conclusion is reversed when the trend in the UK money stock prior to joining the Gold Standard is treated as endogenous; and when nonstationary solutions are considered. It is further suggested that a more realistic interpretation of events must involve the use of a model with price inertia. The final section of the paper considers the major difference between the UK's return to Gold and its impending entry into the EMS, namely the current lack of credibility attached to an exchange rate peg for sterling.
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Suggested Citation

  • Sutherland, A. & Miller, M., 1990. "Britain'S Return To Gold And Impending Entry Into The Ems: Expectations, Joining Conditions And Credibility," The Warwick Economics Research Paper Series (TWERPS) 361, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:361
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1989-1994/twerp361.pdf
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    References listed on IDEAS

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    1. Robert P. Flood & Peter M. Garber, 1991. "The Linkage Between Speculative Attack and Target Zone Models of Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1367-1372.
    2. Flood, Robert P & Garber, Peter M, 1983. "A Model of Stochastic Process Switching," Econometrica, Econometric Society, vol. 51(3), pages 537-551, May.
    3. Svensson, Lars E. O., 1991. "Target zones and interest rate variability," Journal of International Economics, Elsevier, vol. 31(1-2), pages 27-54, August.
    4. Miller, Marcus & Weller, Paul, 1991. "Exchange Rate Bands with Price Inertia," Economic Journal, Royal Economic Society, vol. 101(409), pages 1380-1399, November.
    5. Smith, Gregor W & Smith, R Todd, 1990. "Stochastic Process Switching and the Return to Gold, 1925," Economic Journal, Royal Economic Society, vol. 100(399), pages 164-175, March.
    6. F. Giavazzi & L. Spaventa, 1990. "The "New" EMS," Working Papers 86, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Froot, Kenneth A. & Obstfeld, Maurice, 1991. "Exchange-rate dynamics under stochastic regime shifts : A unified approach," Journal of International Economics, Elsevier, vol. 31(3-4), pages 203-229, November.
    8. Miller, M. & Sutherland, A., 1989. "Monetary Targets, Exchange Rate Targets And After: A Stochastic "Hard- Landing" For Sterling?," The Warwick Economics Research Paper Series (TWERPS) 336, University of Warwick, Department of Economics.
    9. Lewis, Karen K., 1988. "The persistence of the `peso problem' when policy is noisy," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 5-21, March.
    10. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
    11. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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    Cited by:

    1. Eichengreen, Barry, 1993. "The Endogeneity of Exchange Rate Regimes," CEPR Discussion Papers 812, C.E.P.R. Discussion Papers.
    2. Buiter, Willem H. & Pesenti, Paolo A., 1990. "Rational Speculative Bubbles In An Exchange Rate Target Zone," Economic Research Papers 268490, University of Warwick - Department of Economics.
    3. Miller, Marcus & Sutherland, Alan, 1991. "The "Walters Critique" of the EMS--A Case of Inconsistent Expectations?," The Manchester School of Economic & Social Studies, University of Manchester, vol. 59(0), pages 23-37, Supplemen.

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