Credibility and Interest Rate Discretion in the ERM
Recent proposals for reforming the international monetary system often focus on a target zone arrangement for the dollar, euro and yen. Theoretical research suggests that a credible target zone confers on a participant some short-run discretion in the setting of interest rates, and recent empirical research suggests that this was indeed the case for the Classical gold standard, perhaps the best example of a credible target zone. In this paper we examine the extent of short-run interest rate discretion (SRID) conferred by another experiment with target zones, namely the ERM experience. Amongst our findings is the result that countries that had a credible commitment to the ERM did indeed have SRID. Copyright Kluwer Academic Publishers 2003
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Volume (Year): 14 (2003)
Issue (Month): 4 (October)
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References listed on IDEAS
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- De Grauwe, Paul, 1989. "Is the European Monetary System a DM-Zone?," CEPR Discussion Papers 297, C.E.P.R. Discussion Papers.
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- Hali J. Edison & Linda S. Kole, 1994. "European monetary arrangements: implications for the dollar, exchange rate variability and credibility," International Finance Discussion Papers 468, Board of Governors of the Federal Reserve System (U.S.).
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"A long-run view of the European monetary system,"
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Elsevier, vol. 10(1), pages 53-70, March.
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