IDEAS home Printed from https://ideas.repec.org/a/bla/intfin/v2y1999i1p1-31.html
   My bibliography  Save this article

Explaining Recent European Exchange-Rate Stability

Author

Listed:
  • De Grauwe, Paul
  • Dewachter, Hans
  • Veestraeten, Dirk

Abstract

In this paper we analyse the behaviour of the bilateral exchange rates that were converted into euros on 1 January 1999. Using a model of stochastic regime switching we study the effects of future conversion on current exchange-rate dynamics. We find that exchange rates are to a large extent determined by the discounted (expected) conversion value. The theoretical model is subsequently applied to the currencies that participate in the first wave of the European Monetary Union (EMU). Using a Kalman approach, we find that for most currencies the weight attached to the future conversion value was well over 95%. This pricing characteristic successfully insulated intra-European exchange rates from the turmoil generated by the ongoing crises in Asia, Russia and Latin America. Copyright 1999 by Blackwell Publishers Ltd.

Suggested Citation

  • De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Explaining Recent European Exchange-Rate Stability," International Finance, Wiley Blackwell, vol. 2(1), pages 1-31, April.
  • Handle: RePEc:bla:intfin:v:2:y:1999:i:1:p:1-31
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=infi&volume=2&issue=1&year=1999&part=null
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Francisco Ledesma-Rodriguez & Manuel Navarro-Ibanez & Jorge Perez-Rodriguez & Simon Sosvilla-Rivero, 2005. "Assessing the credibility of a target zone: evidence from the EMS," Applied Economics, Taylor & Francis Journals, vol. 37(19), pages 2265-2287.
    2. Francisco Ledesma Rodríguez & Manuel Navarro Ibáñez & Jorge Pérez Rodríguez & Simón Sosvilla Rivero, 2008. "The Credibility of the European monetary System:A Review," Cuadernos de Economía - Spanish Journal of Economics and Finance, ELSEVIER, vol. 31(86), pages 005-034, Mayo-Agos.
    3. Naszodi, Anna, 2010. "Testing the asset pricing model of exchange rates with survey data," Working Paper Series 1200, European Central Bank.
    4. Francisco Perez-Bermejo & Simon Sosvilla-Rivero & Reyes Maroto-Illera, 2007. "An eclectic approach to currency crises: drawing lessons from the EMS experience," Applied Financial Economics, Taylor & Francis Journals, vol. 18(6), pages 503-519.
    5. Anna Naszódi, 2007. "Are the Exchange Rates of EMU Candidate Countries Anchored by their Expected Euro Locking Rates?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 115-134.
    6. Paul de Grauwe & Gunther Schnabl, 2004. "Nominal versus Real Convergence with Respect to EMU Accession.How to Cope with the Balassa-Samuelson Dilemma," EUI-RSCAS Working Papers 20, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    7. Gunther Schnabl & Paul De Grauwe, 2004. "Nominal versus Real Convergence with Respect to EMU Accession - EMU Entry Scenarios for the New Member States," International Finance 0403008, EconWPA, revised 16 Feb 2005.
    8. S. Sosvilla-Rivero & R. Maroto-Illera, 2003. "Regimen changes and duration in the European Monetary System," Applied Economics, Taylor & Francis Journals, vol. 35(18), pages 1923-1933.
    9. Simón Sosvilla-Rivero & Francisco Pérez-Bermejo, "undated". "Credibility and Duration in Target Zones: Evidence from the EMS," Working Papers 2003-19, FEDEA.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:intfin:v:2:y:1999:i:1:p:1-31. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.