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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. Rose, Andrew K & Svensson, Lars E O, 1993. "European Exchange Rate Credibility Before the Fall," CEPR Discussion Papers 852, C.E.P.R. Discussion Papers.
  2. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March.
  3. 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.
  4. 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.
  5. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-15, May.
  6. 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.
  7. Neil R. Ericsson & David F. Hendry, 1989. "Encompassing and rational expectations: how sequential corroboration can imply refutation," International Finance Discussion Papers 354, Board of Governors of the Federal Reserve System (U.S.).
  8. 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.
  9. Bryant, R.C. & Zhang, L., 1996. "Intertemporal Fiscal Policy in Macro-Economic Models: Introduction and Major Alternatives," Papers 123, Brookings Institution - Working Papers.
  10. Lars E.O. Svensson, 1992. "Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates," NBER Working Papers 4207, National Bureau of Economic Research, Inc.
  11. 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.
  12. 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.
  13. Miller, Preston J & Roberds, William T, 1991. "The Quantitative Significance of the Lucas Critique," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(4), pages 361-87, October.
  14. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
  15. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
  16. Weber, Axel A., 1996. "Germany before and after unification: A structural VAR analysis," Economic Modelling, Elsevier, vol. 13(4), pages 575-601, October.
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