Assessing the credibility of a target zone: evidence from the EMS
This paper provides some new evidence on the credibility of the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). The study differs from previous research in the literature in three main respects. First, the main contribution is the use of several credibility indicators, some of which have never been applied before to all of the currencies under study. This allows one to strengthen the results obtained in this paper. Second, a longer period than that of previous studies is analysed, covering the complete EMS history. Third, a comparison has been made of the prediction qualities of the different indicators, in order to explore their ability to capture the main ERM events (realignments, changes in the fluctuations bands and speculative pressures). Fourth, the indicators are applied to the experience of the new, modified ERM linking the currencies of non-euro area Member States to the euro, showing the relevance of this approach in the near future with the enlargement of the European Union.
Volume (Year): 37 (2005)
Issue (Month): 19 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAEC20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAEC20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bajo-Rubio, Oscar & Sosvilla-Rivero, Simon & Fernandez-Rodriguez, Fernando, 2001.
"Asymmetry in the EMS: New evidence based on non-linear forecasts,"
European Economic Review,
Elsevier, vol. 45(3), pages 451-473, March.
- Oscar Bajo-Rubio & Simón Sosvilla-Rivero & Fernado Fernández-Rodríguez, . "Asymmetry in the EMS: New evidence based on non-linear forecasts," Working Papers 97-24, FEDEA.
- Óscar Bajo Rubio & Simón Sosvilla Rivero & Fernando Fernández Rodríguez, 2000. "Asymmetry In The Ems: New Evidence Based On Non-Linear Forecasts," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0001, Departamento de Economía - Universidad Pública de Navarra.
- Axel A. Weber, 1991. "Stochastic Process Switching and Intervention in Exchange Rate Target Zones: Empirical Evidence from the EMS," Volkswirtschaftliche Diskussionsbeiträge 20-91, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
- Giuseppe Bertola & Lars E.O. Svensson, 1991.
"Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models,"
NBER Working Papers
3576, National Bureau of Economic Research, Inc.
- Giuseppe Bertola & Lars E. O. Svensson, 1993. "Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 689-712.
- Bertola, G. & Svensson, L.E., 1990. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," Papers 481, Stockholm - International Economic Studies.
- Bertola, Giuseppe & Svensson, Lars E O, 1991. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," CEPR Discussion Papers 513, C.E.P.R. Discussion Papers.
- Seiford, Lawrence M. & Thrall, Robert M., 1990. "Recent developments in DEA : The mathematical programming approach to frontier analysis," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 7-38.
- Weber, Axel A, 1991. "Stochastic Process Switching and Intervention in Exchange Rate Target Zones: Empirical Evidence from the EMS," CEPR Discussion Papers 554, C.E.P.R. Discussion Papers.
- Clements, Michael P & Smith, Jeremy, 1996.
"A Monte Carlo Study of the Forecasting Performance of Empirical Setar Models,"
The Warwick Economics Research Paper Series (TWERPS)
464, University of Warwick, Department of Economics.
- Clements, Michael P & Smith, Jeremy, 1999. "A Monte Carlo Study of the Forecasting Performance of Empirical SETAR Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 123-41, March-Apr.
- Simon Sosvilla-Rivero & Fernando Fernandez-Rodriguez & Oscar Bajo-Rubio, 1999. "Exchange rate volatility in the EMS before and after the fall," Applied Economics Letters, Taylor & Francis Journals, vol. 6(11), pages 717-722.
- Juan Ayuso & M.P. Jurado & Fernando Restoy, 1994. "Is Exchange Rate Risk Higher in the E.R.M. after the Widening of Fluctuation Bands?," Working Papers 9419, Banco de España;Working Papers Homepage.
- Darvas, Zsolt, 1998. "Spurious Correlation in Exchange Rate Target Zone Modelling: Testing the Drift Adjustment Method on the US Dollar, Random Walk and Chaos," CEPR Discussion Papers 1890, C.E.P.R. Discussion Papers.
- Taylor, Stephen J, 1992. "Rewards Available to Currency Futures Speculators: Compensation for Risk or Evidence of Inefficient Pricing?," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 105-16, Supplemen.
- Weber, A., 1991. "EMS Credibility," Discussion Paper 1991-3, Tilburg University, Center for Economic Research.
- Francisco Ledesma-Rodriguez & Manuel Navarro-Ibanez & Jorge Perez-Rodriguez & Simon Sosvilla-Rivero, 2000. "On the Credibility of the Irish Pound in the EMS," The Economic and Social Review, Economic and Social Studies, vol. 31(2), pages 151-172.
- Charles Engel & Craig S. Hakkio, 1994.
"The Distribution of Exchange Rates in the EMS,"
NBER Working Papers
4834, National Bureau of Economic Research, Inc.
- Garcia, Rene & Gencay, Ramazan, 2000.
"Pricing and hedging derivative securities with neural networks and a homogeneity hint,"
Journal of Econometrics,
Elsevier, vol. 94(1-2), pages 93-115.
- René Garcia & Ramazan Gençay, 1998. "Pricing and Hedging Derivative Securities with Neural Networks and a Homogeneity Hint," CIRANO Working Papers 98s-35, CIRANO.
- De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Explaining Recent European Exchange-Rate Stability," International Finance, Wiley Blackwell, vol. 2(1), pages 1-31, April.
When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:37:y:2005:i:19:p:2265-2287. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.