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Credibility and Duration in Target Zones: Evidence from the EMS

  • Simón Sosvilla-Rivero
  • Francisco Pérez-Bermejo
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    This paper is devoted to the analysis of the past, present, and future of the European Monetary System (EMS). After examining its background, we review the structure and operation of the EMS, as well as the theoretical framework used to explain exchange-rate movements inside official fluctuation bands. Moreover, we offer some comments and assessment on the EMS in the light of empirical papers examining the EMS from both the credibility and currency crisis approaches, with special emphasis on the survival of the central parities. Finally, drawing on the EMS experience, we make some remarks on new EMS, linking the currencies of non-euro area Member States to the euro, both current European Union Member States and future candidates.

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    File URL: http://documentos.fedea.net/pubs/dt/2003/dt-2003-19.pdf
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    Paper provided by FEDEA in its series Working Papers with number 2003-19.

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    Handle: RePEc:fda:fdaddt:2003-19
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    11. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
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    13. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1994. "Two Cases for Sand in the Wheels of International Finance," Center for International and Development Economics Research (CIDER) Working Papers 233396, University of California-Berkeley, Department of Economics.
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    17. Agenor, Pierre-Richard & Masson, Paul R, 1999. "Credibility, Reputation, and the Mexican Peso Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 70-84, February.
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