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Evaluating the U.K.'s Choice of Entry Rate into the ERM

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  • Wren-Lewis, Simon, et al

Abstract

The paper discusses how a country should choose the rate at which it enters a fixed or quasi-fixed exchange rate zone. It is argued that entry must be consistent with the economy's fundamental equilibrium exchange rate, but that governments can influence the speed of convergence to the fundamental equilibrium exchange rate. Once entry has occurred, this can either involve using fiscal policy to alter the economy's transitional inflation path or monetary policy to move within the currency band. This framework is applied to U.K. entry into the European Monetary System and suggests that entry was at an unrealistically high rate. Copyright 1991 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Wren-Lewis, Simon, et al, 1991. "Evaluating the U.K.'s Choice of Entry Rate into the ERM," The Manchester School of Economic & Social Studies, University of Manchester, vol. 59(0), pages 1-22, Supplemen.
    • Handle: RePEc:bla:manch2:v:59:y:1991:i:0:p:1-22
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    Cited by:

    1. Pavel Trunin & Dmitriy Kniazev & Ekaterina Kuduykina, 2010. "Perspective issues in the CBR`s exchange rate policy," Research Paper Series, Gaidar Institute for Economic Policy, issue 144P.
    2. Hughes Hallett, Andrew & Richter, Christian, 2004. "Estimating an equilibrium exchange rate for the dollar and other key currencies," Economic Modelling, Elsevier, vol. 21(6), pages 1117-1144, December.
    3. Hoej, Liselotte, 1995. "Fundamental equilibrium exchange rate : a case study of the Finnish Markka," Research Discussion Papers 2/1995, Bank of Finland.
    4. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
    5. repec:zbw:bofrdp:1995_002 is not listed on IDEAS
    6. Jovanovic, Branimir, 2007. "Calculating the Fundamental Equilibrium Exchange Rate of the Macedonian Denar," MPRA Paper 43161, University Library of Munich, Germany.

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