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Regimen changes and duration in the European Monetary System

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  • S. Sosvilla-Rivero
  • R. Maroto-Illera

Abstract

This article examines the regime changes in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS), applying the duration model approach to weekly data of eight currencies participating in the ERM, covering the complete EMS history. When using the non-parametric (univariate) analysis, it was found that for those regimens with long durations, the ERM would have been relatively stable, while for the (more common) regimes associated with short durations would have been more unstable. The probability of maintaining a certain regime is estimated to be 0.685. When applying a parametric (multivariate) analysis to investigate the role of other variables in the probability of a regime change, it is concluded that the interest rate differential with Germany and the magnitude of the realignment would have negatively affected the duration of a given regime, while credibility would have positively influenced such duration. Finally, when distinguishing between groups of currencies, it is observed that those in the core are more stable than those in the periphery, obtaining evidence against equality of survival functions among these groups of currencies.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:applec:v:35:y:2003:i:18:p:1923-1933
    DOI: 10.1080/0036840310001628783
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    Cited by:

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    3. Robert Brooks & Tim Fry & William Dimovski & Sandra Mihajilo, 2009. "A duration analysis of the time from prospectus to listing for Australian initial public offerings," Applied Financial Economics, Taylor & Francis Journals, vol. 19(3), pages 183-190.
    4. S. DeVicerte & P. Alvarez & J. Perez & C. Caso, 2008. "Does currency crisis identification matter?," Applied Financial Economics, Taylor & Francis Journals, vol. 18(5), pages 387-395.

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    More about this item

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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