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Credibility and Interest Rate Discretion in the ERM

  • Hali Edison

    ()

  • Ronald MacDonald

    ()

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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File URL: http://hdl.handle.net/10.1023/A:1025388009519
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 14 (2003)
Issue (Month): 4 (October)
Pages: 351-368

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Handle: RePEc:kap:openec:v:14:y:2003:i:4:p:351-368
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  1. 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.).
  2. De Grauwe, Paul, 1989. "Is the European Monetary System a DM-Zone?," CEPR Discussion Papers 297, C.E.P.R. Discussion Papers.
  3. Hali J. Edison & Eric Fisher, 1989. "A long-run view of the european monetary system," International Finance Discussion Papers 339, Board of Governors of the Federal Reserve System (U.S.).
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