Moving the escudo into the euro
When the 1987 general elections brought a durable government to Portugal, the national environment was still inflationary. Nevertheless, thanks to the efforts of successive minister of finance/central bank governor pairs, the criteria for Economic and Monetary Union (EMU) were met and the seventh pair saw the euro conversion rate be set at 200 escudos. The agreed rate represents a depreciation of some 16% over the one at witch the escudo entered the ECU basket in 1989. As the change in regime towards stability-oriented macroeconomic policies was completed when the parity grid of the Exchange Rate Mechanism of the European Monetary System (ERM) was under severe stress, escudo depreciations were agreed upon at realignments initiated by the peseta. The understanding by the Portuguese authorities of the ERM code of conduct as they prepared to join after the 1991 general elections made it possible to acquire financial reputation very quickly. But the enhanced national credibility abroad caused tension within several minister/governor pairs, especially with respect to the timing of ERM entry, the speed at which to move to full currency convertibility and whether the escudo should respond to peseta realignments. Moreover, both the opposition and the governing party initially resisted the stability-oriented policy, stalling structural reforms and allowing the opposition to win the 1995 general elections on a reformist platform. As a consequence, the stability-oriented policy was maintained until EMU qualification but there were no other major reforms, rising the threat of a "euro hold-up". The weekly escudo-DMark rate reveals widely different volatility states which were accompanied by six successive exchange rate regimes. Before entering the ERM, a crawling peg was discreetly replaced by DMark shadowing with reinforced controls on capital inflows at the beginning of first stage of EMU. Yet, the escudo-DMark rate, even allowing for the last realignment, was more stable in the ERM than when it was inconvertible and the central bank controlled the currency. The comparison excludes the sub-period of crises before widening the bands and the one after volatility in propective EMU qualifying currencies subsided. Markov switching autoregressive conditional heteroskedasticity (SWARCH) models with more than three states capture all régimes. The specification with five states is favored because it suggests the nature of the response of the central bank to speculative attacks during the crises regime.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1999|
|Contact details of provider:|| Postal: 48 boulevard Jourdan - 75014 Paris|
Phone: 01 43 13 63 00
Fax: 01 43 13 63 10
Web page: http://www.delta.ens.fr/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hamilton, James D. & Susmel, Raul, 1994.
"Autoregressive conditional heteroskedasticity and changes in regime,"
Journal of Econometrics,
Elsevier, vol. 64(1-2), pages 307-333.
- Tom Doan, "undated". "RATS programs to estimate Hamilton-Susmel Markov Switching ARCH model," Statistical Software Components RTZ00083, Boston College Department of Economics.
- Bliss,Christopher & De Macedo,Jorge Braga (ed.), 1990. "Unity with Diversity in the European Economy," Cambridge Books, Cambridge University Press, number 9780521395205, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:del:abcdef:1999-14. 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 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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.