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Financial and Currency Integration in the European Monetary System: The Statistical Record

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  • Frankel, Jeff
  • Phillips, Steve
  • Chinn, Menzie

Abstract

The paper documents econometrically the trend toward financial and monetary integration among the countries of the EMS. The first half of the paper examines return differentials among European countries. Short-term nominal interest differentials have fallen. What is the role of county factors (e.g., capital controls) versus currency factors (e.g., exchange risk premia)? To find out, we look directly at covered interest differentials, measured with the aid of forward rate data, and exchange risk premia, measured with the aid of survey data on exchange rate expectations. The second half of the paper examines the credibility of the EMS, essentially updating the results and condensing the presentation in "The European Monetary System: Credible at Last?" We find evidence that the danger of realignment perceived by investors was lower in 1990-91 than previously. The overall conclusion is that all components of the interest differential fell during the course of the 1980s.

Suggested Citation

  • Frankel, Jeff & Phillips, Steve & Chinn, Menzie, 1992. "Financial and Currency Integration in the European Monetary System: The Statistical Record," Center for International and Development Economics Research (CIDER) Working Papers 233177, University of California-Berkeley, Department of Economics.
  • Handle: RePEc:ags:ucbewp:233177
    DOI: 10.22004/ag.econ.233177
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    Cited by:

    1. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1995. "Two Cases for Sand in the Wheels of International Finance," Economic Journal, Royal Economic Society, vol. 105(428), pages 162-172, January.
    2. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Economic Journal, Royal Economic Society, vol. 104(425), pages 813-827, July.
    3. Frankel, Jeffrey A. & Funke, Norbert, 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers 233377, University of California-Berkeley, Department of Economics.
    4. Mali J. Edison & Linda S. Kole, 1995. "European monetary arrangements: Implications for the dollar, exchange rate variability and credibility," European Financial Management, European Financial Management Association, vol. 1(1), pages 61-86, March.
    5. Eichengreen, Barry, 1994. "The Bretton Woods System: Paradise Lost?," Center for International and Development Economics Research (CIDER) Working Papers 233394, University of California-Berkeley, Department of Economics.
    6. Eichengreen, Barry, 1993. "A Marshall Plan for the East: Options for 1993," Center for International and Development Economics Research (CIDER) Working Papers 233185, University of California-Berkeley, Department of Economics.
    7. Eichengreen, Barry & Bayoumi, Tamim, 1994. "The political economy of fiscal restrictions: Implications for Europe from the United States," European Economic Review, Elsevier, vol. 38(3-4), pages 783-791, April.
    8. Eichengreen, Barry & Flandreau, Marc, 1994. "The Geography of the Gold Standard," Center for International and Development Economics Research (CIDER) Working Papers 233393, University of California-Berkeley, Department of Economics.
    9. Helen Popper, 1995. "Term premia comovement in German, Japanese, and U.S. domestic markets," Open Economies Review, Springer, vol. 6(1), pages 49-62, January.
    10. Jeffrey A. Frankel and Shang-Jin Wei., 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers C93-026, University of California at Berkeley.
    11. Frankel, Jeffrey A., 1992. "The Evolving Japanese Financial System, and the Cost of Capital," Center for International and Development Economics Research (CIDER) Working Papers 233170, University of California-Berkeley, Department of Economics.
    12. Barry Eichengreen., 1993. "Prerequisites for International Monetary Stability," Center for International and Development Economics Research (CIDER) Working Papers C93-018, University of California at Berkeley.
    13. Bardhan, Pranab, 1993. "Rational Fools and Cooperation in a Poor Hydraulic Economy," Center for International and Development Economics Research (CIDER) Working Papers 233195, University of California-Berkeley, Department of Economics.
    14. Barry Eichengreen., 1994. "Deja Vu All Over Again: Lessons from the Gold Standard for European Monetary Unification," Center for International and Development Economics Research (CIDER) Working Papers C94-032, University of California at Berkeley.
    15. Barry Eichengreen., 1992. "The Political Economy of Fiscal Policy After EMU," Center for International and Development Economics Research (CIDER) Working Papers C92-004, University of California at Berkeley.

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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