IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/790.html
   My bibliography  Save this paper

The Determinants of Realignment Expectations Under the EMS - Some Empirical Regularities

Author

Listed:
  • Chen, Zhaohui
  • Giovannini, Alberto

Abstract

The stability of the EMS depends crucially on the realignment expectations of market participants. In this paper we discuss how to measure such expectations and how to relate them to economic fundamentals, central bank reputation, and the institutional arrangements of the EMS. We find the following empirical regularities for FF/DM and IL/DM exchange rates: (1) expected devaluations are positively related to the current exchange rate deviation from the central parity; (2) expected devaluations are negatively related to the length of time since last realignment in the short and medium run; (3) the Basle-Nyborg agreements seem to have a stabilizing effect for both currencies examined, albeit through different channels; (4) large revaluation expectations occur immediately after devaluations. (1) and (4) are not inconsistent with the hypothesis of `over-speculation' or market inefficiency.

Suggested Citation

  • Chen, Zhaohui & Giovannini, Alberto, 1993. "The Determinants of Realignment Expectations Under the EMS - Some Empirical Regularities," CEPR Discussion Papers 790, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:790
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=790
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Mundaca, Gabriela, 2003. "A Drift of the "Drift Adjustment Method"," Memorandum 16/2002, Oslo University, Department of Economics.
    2. 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.
    3. Selma Mahfouz & Richard Hemming & Michael Kell, 2002. "The Effectiveness of Fiscal Policy in Stimulating Economic Activity; A Review of the Literature," IMF Working Papers 02/208, International Monetary Fund.
    4. Radeck, Karin, 2002. "Wechselkurszielzonen, wirtschaftlicher Aufholprozess und endogene Realignmentrisiken," Discussion Paper Series 1: Economic Studies 2002,30, Deutsche Bundesbank.
    5. Peria, Maria Soledad Martinez, 1999. "A regime - switching approach to studying speculative attacks : focus on European Monetary System crises," Policy Research Working Paper Series 2132, The World Bank.
    6. Eva Gutierrez, 1996. "A model of realignment in the EMS," Investigaciones Economicas, Fundación SEPI, vol. 20(2), pages 161-176, May.
    7. Vlaar, P. J. G. & Palm, F. C., 1997. "Inflation differentials and excess returns in the European Monetary System," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(1), pages 1-20, April.
    8. Giorgioni, Gianluigi & Holden, Ken, 2002. "The crisis of the CFA Franc zone: the case of Cote d'Ivoire," Economic Modelling, Elsevier, vol. 19(4), pages 531-564, August.
    9. Benoît Cœuré & Antoine Magnier, 1996. "Crédibilité et fondamentaux macro-économiques au sein du SME : un examen empirique," Économie et Prévision, Programme National Persée, vol. 123(2), pages 113-146.
    10. Cecilia Jona-Lasinio, 1999. "Le Franc français et la récente crise monétaire européenne," Économie et Prévision, Programme National Persée, vol. 140(4), pages 147-159.
    11. I. Paya & A. Duarte & K. Holden, 2003. "On the equilibrium value of the peseta," Applied Financial Economics, Taylor & Francis Journals, vol. 13(5), pages 317-335.

    More about this item

    Keywords

    Basle-Nyborg Agreements; EMS; Exchange Rates; Realignment;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:790. 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: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.