How Do Fixed-Exchange-Rates Regimes Work? The Evidence from the Gold Standard, Bretton Woods and the EMS
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.
|Date of creation:||Oct 1988|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:282. 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: ()
If references are entirely missing, you can add them using this form.