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How Do Fixed-Exchange-Rates Regimes Work? The Evidence from the Gold Standard, Bretton Woods and the EMS


  • Giovannini, Alberto


This paper discusses the institutional aspects and the empirical evidence in favor of the hypothesis that fixed exchange rate regimes work asymmetrically, with one country providing the nominal anchor for the whole system. I derive the observable implications of the 'asymmetry' hypothesis using a standard model of fixed exchange rates in which the center-country pegs the nominal interest rate, but disregards fluctuations in foreign exchange reserves, while the other countries target their foreign exchange reserves. In equilibrium, countries at the periphery accommodate fully the center-country's policies. Furthermore, all idiosyncratic shocks are fully reflected in the interest rates of the countries at the periphery, but do not affect the center-country's interest rate. I then examine the empirical evidence in support of the asymmetry hypothesis which is drawn both from the study of interest-rate behavior around some well-known episodes of international portfolio disturbances, and from the analysis of the stochastic implications of the model in section 4 of the paper.

Suggested Citation

  • Giovannini, Alberto, 1988. "How Do Fixed-Exchange-Rates Regimes Work? The Evidence from the Gold Standard, Bretton Woods and the EMS," CEPR Discussion Papers 282, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:282

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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Richard C. Marston, 1992. "Interest Differentials Under Fixed and Flexible Exchange Rates: The Effects of Capital Controls and Exchange Risk," NBER Working Papers 4053, National Bureau of Economic Research, Inc.
    2. Guglielmo Maria Caporale & Nikitas Pittis, 1995. "Interest rate linkages within the European Monetary System: an alternative interpretation," Applied Economics Letters, Taylor & Francis Journals, vol. 2(2), pages 45-47.
    3. repec:wsi:ijitdm:v:16:y:2017:i:01:n:s0219622016500504 is not listed on IDEAS
    4. Caporale, Guglielmo Maria & Kalyvitis, Sarantis & Pittis, Nikitas, 1996. "Interest rate convergence, capital controls, risk premia and foreign exchange market efficiency in the EMS," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 693-714.


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