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The 'Walters Critique' of the EMS - A Case of Inconsistent Expectations

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  • Miller, Marcus
  • Sutherland, Alan

Abstract

Alan Walters has suggested that the European Monetary System will prove dynamically unstable when capital controls are removed. The argument is analysed within a model which includes overlapping contracts. It is found that the short run effects predicted by Walters only arise when the credibility of the peg differs as between the labour and financial markets: but even if such a difference exists the system is stable in the long run.

Suggested Citation

  • Miller, Marcus & Sutherland, Alan, 1990. "The 'Walters Critique' of the EMS - A Case of Inconsistent Expectations," Economic Research Papers 268483, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:268483
    DOI: 10.22004/ag.econ.268483
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    References listed on IDEAS

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    1. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834.
    2. F. Giavazzi & L. Spaventa, 1990. "The "New" EMS," Working Papers 86, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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    1. Esto hay que pagarlo: la historia de los tres cerditos y el lobo II
      by Cives in Politikon on 2012-05-09 17:00:00

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    Cited by:

    1. Svensson, Lars E. O., 1994. "Fixed exchange rates as a means to price stability: What have we learned?," European Economic Review, Elsevier, vol. 38(3-4), pages 447-468, April.
    2. Oliver Landmann, 2009. "EMU@10: Coping with Rotating Slumps," Discussion Paper Series 9, Department of International Economic Policy, University of Freiburg, revised Jul 2009.
    3. Bonatti, Luigi & Fracasso, Andrea, 2019. "Policy inertia, self-defeating expectations and structural reforms: can policy modeling cope?," Journal of Policy Modeling, Elsevier, vol. 41(5), pages 943-962.
    4. Alan Ahearne & Juan Delgado & Jakob von Weizsäcker, 2008. "A tail of two countries," Policy Briefs 6, Bruegel.
    5. von Hagen, Jurgen & Hofmann, Boris, 2004. "Macroeconomic implications of low inflation in the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 5-23, March.
    6. Kirsanova, Tatiana & Vines, David & Wren-Lewis, Simon, 2006. "Fiscal Policy and Macroeconomic Stability Within a Currency Union," CEPR Discussion Papers 5584, C.E.P.R. Discussion Papers.
    7. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2007. "Chapter 2: Macroeonomic adjustment in the euro area – the cases of Ireland and Italy," EEAG Report on the European Economy, CESifo, vol. 0, pages 59-72, February.
    8. Paolo Giovane & Lorenzo Bini-Smashi, 1996. "Convergence of inflation: A necessary prerequisite for EMU?," Open Economies Review, Springer, vol. 7(2), pages 117-126, April.

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