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The Collapse of the ‘New EMS’: An Interpretation

  • Juan Garcia

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    Existing theoretical models cannot explain the following features of the EMS and its crisis in 1992: its progressive hardening from 1987 onwards; the fact that credibility was ‘shared’ the progressive deterioration of credibility after the first Danish referendum without changes in the economic fundamentals. This paper argues that the reason lies in the fact that the literature has not accounted for the changes in the perceived prospects of EMU. We show that an adjustable peg regime that incorporates these prospects can explain the three features listed above. Copyright Kluwer Academic Publishers 1999

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    File URL: http://hdl.handle.net/10.1023/A:1008317322771
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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 10 (1999)
    Issue (Month): 2 (May)
    Pages: 203-219

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    Handle: RePEc:kap:openec:v:10:y:1999:i:2:p:203-219
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    1. F. Gulcin Ozkan & Alan Sutherland, . "A Model of the ERM Crisis," EPRU Working Paper Series 93-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    2. Torsten Persson & Guido Tabellini, 1996. "Monetary Cohabitation in Europe," NBER Working Papers 5532, National Bureau of Economic Research, Inc.
    3. Drazen, Allan & Masson, Paul R, 1994. "Credibility of Policies versus Credibility of Policymakers," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 735-54, August.
    4. Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 571-82, May.
    5. de Kock, Gabriel & Grilli, Vittorio, 1993. "Fiscal Policies and the Choice of Exchange Rate Regime," Economic Journal, Royal Economic Society, vol. 103(417), pages 347-58, March.
    6. Francesco Giavazzi & Marco Pagano, 1991. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 303-330 National Bureau of Economic Research, Inc.
    7. 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.
    8. Herrendorf, Berthold, 1999. "Transparency, reputation, and credibility under floating and pegged exchange rates," Journal of International Economics, Elsevier, vol. 49(1), pages 31-50, October.
    9. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
    10. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, vol. 105(429), pages 510-19, March.
    11. Gulcin Ozkan, . "Some Evidence on Optimising Models of Currency Crisis," Discussion Papers 96/25, Department of Economics, University of York.
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