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Assessing the Effects of Policy Changes: Lesson from the European 1992 Experience

  • Pierre-Yves HENIN
  • Marie PODEVIN

The paper focuses on the experience of the EMS breakdown in September 1992 as a 'crucial experiment', allowing to identify subsequent changes in policy rules and to assess the invariance of private agents' behaviour to these changes. After a brief summary of the facts, the breakdown and the aftermath, we provide estimates of the change in monetary and budget policy rules for Germany (the benchmark), two 'stayers' (France and the Netherlands) and three 'leavers' (Italy, Spain and the UK). Finally, we perform tests of super exogeneity and invariance of reduced form equations for real activity, inflation and the term structure of interest rates.

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File URL: http://www.jstor.org/stable/20076355
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Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2002)
Issue (Month): 67-68 ()
Pages: 435-461

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Handle: RePEc:adr:anecst:y:2002:i:67-68:p:16
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  1. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers 649, Stockholm University, Institute for International Economic Studies.
  2. Engle, R. & Hendry, D., 1990. "Testing Super Exogeneity And Invariance In Regression Models," Economics Series Working Papers 99100, University of Oxford, Department of Economics.
  3. Bryant, R.C. & Zhang, L., 1996. "Intertemporal Fiscal Policy in Macro-Economic Models: Introduction and Major Alternatives," Papers 123, Brookings Institution - Working Papers.
  4. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
  5. Preston J. Miller & William Roberds, 1987. "The quantitative significance of the Lucas critique," Staff Report 109, Federal Reserve Bank of Minneapolis.
  6. Andrew K. Rose & Lars E.O. Svensson, 1993. "European Exchange Rate Credibility Before the Fall," NBER Working Papers 4495, National Bureau of Economic Research, Inc.
  7. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
  8. Fischer, Andreas M & Peytrignet, Michel, 1991. "The Lucas Critique in Light of Swiss Monetary Policy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(4), pages 481-93, November.
  9. Olivier J. Blanchard, 1984. "The Lucas Critique and the Volcker Deflation," NBER Working Papers 1326, National Bureau of Economic Research, Inc.
  10. Svensson, Lars E O, 1992. "Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates," CEPR Discussion Papers 742, C.E.P.R. Discussion Papers.
  11. Collard, Fabrice & Fève, Patrick & Langot, François, 2000. "Structural Inference and the Lucas Critique," IDEI Working Papers 111, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2001.
  12. Revankar, Nagesh S & Yoshino, Naoyuki, 1990. "An 'Expanded Equation' Approach to Weak-Exogeneity Tests in Structural Systems and a Monetary Application," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 173-77, February.
  13. David F. Hendry & Neil R. Ericsson, 1999. "Encompassing and rational expectations: How sequential corroboration can imply refutation," Empirical Economics, Springer, vol. 24(1), pages 1-21.
  14. Oliner, Stephen D. & Rudebusch, Glenn D. & Sichel, Daniel, 1996. "The Lucas critique revisited assessing the stability of empirical Euler equations for investment," Journal of Econometrics, Elsevier, vol. 70(1), pages 291-316, January.
  15. Fuhrer, Jeffrey C, 1996. "Monetary Policy Shifts and Long-Term Interest Rates," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1183-1209, November.
  16. Weber, Axel A., 1996. "Germany before and after unification: A structural VAR analysis," Economic Modelling, Elsevier, vol. 13(4), pages 575-601, October.
  17. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
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