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Credibility and Duration in Target Zones: Evidence from the EMS

  • Simón Sosvilla-Rivero
  • Francisco Pérez-Bermejo

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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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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  8. Giuseppe Bertola & Lars E.O. Svensson, 1991. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," NBER Working Papers 3576, National Bureau of Economic Research, Inc.
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  13. Francisco Perez-Bermejo & Simon Sosvilla-Rivero & Reyes Maroto-Illera, 2007. "An eclectic approach to currency crises: drawing lessons from the EMS experience," Applied Financial Economics, Taylor & Francis Journals, vol. 18(6), pages 503-519.
  14. Hagen, Jurgen von & Fratianni, Michele, 1990. "German dominance in the EMS: evidence from interest rates," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 358-375, December.
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  16. Simon Sosvilla-Rivero & Fernando Fernandez-Rodriguez & Oscar Bajo-Rubio, 1999. "Exchange rate volatility in the EMS before and after the fall," Applied Economics Letters, Taylor & Francis Journals, vol. 6(11), pages 717-722.
  17. Barry Eichengreen, James Tobin, and Charles Wyplosz., 1994. "Two Cases for Sand in the Wheels of International Finance," Center for International and Development Economics Research (CIDER) Working Papers C94-045, University of California at Berkeley.
  18. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "Paper tigers? A model of the Asian crisis," Research Paper 9822, Federal Reserve Bank of New York.
  19. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
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