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Attitudes Towards Inflation and the Viability of Fixed Exchange Rates: Evidence from the EMS

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  • Collins, S.M.
  • Giavazzi, F.

Abstract

History provides us with many examples of multiple country fixed exchange rate regimes that have eventually fallen apart. In light of these failures, why has the EMS been so successful in stabilizing exchange rates among members, and in expanding its membership? This paper argues that one key aspect of the explanation lies in a convergence in attitudes toward inflation and unemployment among EMS members since the late 1970s. This paper presents new empirical evidence for this convergence using household survey data for eight European countries during 1974-90. We find evidence that initially high inflation countries -- France and Italy -- have experienced a decrease in tolerance for inflation relative to unemployment. Germany and other low inflation countries, in contrast, appear to have experienced a decrease in tolerance for unemployment. The paper also contains a theoretical section that illustrates why shifts in attitudes of voters within a given country might lead that country to join a fixed exchange rate regime.
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Suggested Citation

  • Collins, S.M. & Giavazzi, F., 1992. "Attitudes Towards Inflation and the Viability of Fixed Exchange Rates: Evidence from the EMS," Harvard Institute of Economic Research Working Papers 1592, Harvard - Institute of Economic Research.
    • Handle: RePEc:fth:harver:1592
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    Cited by:

    1. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
    2. Vaubel, Roland, 1999. "The Future of the Euro : A Public Choice Perspective," Discussion Papers 570, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    3. Hayo, Bernd, 1998. "Inflation culture, central bank independence and price stability," European Journal of Political Economy, Elsevier, vol. 14(2), pages 241-263, May.
    4. Hyunwoo Kim, 2023. "The microfoundation of macroeconomic populism: The effects of economic inequality on public inflation aversion," Economics and Politics, Wiley Blackwell, vol. 35(1), pages 65-96, March.
    5. Pierre-Guillaume Méon & Jean-Marc Rizzo, 2002. "The Viability of Fixed Exchange Rate Commitments: Does Politics Matter? A Theoretical and Empirical Investigation," Open Economies Review, Springer, vol. 13(2), pages 111-132, April.
    6. Pedro Sousa, 2009. "Do ECB Council Decisions represent always a Real Euro Consensus?," Working Papers 9/2009, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
    7. Michael D. Bordo, 1993. "The gold standard, Bretton Woods and other monetary regimes: a historical appraisal," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 123-191.
    8. Beetsma, R. & Bovenberg, A.L., 1995. "The role of public debt in the game of double chicken," Research Memorandum 025, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    9. Gros Daniel & Hefeker Carsten, 2002. "One Size Must Fit All: National Divergences in a Monetary Union," German Economic Review, De Gruyter, vol. 3(3), pages 247-262, August.
    10. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics 0103006, University Library of Munich, Germany.
    11. Malte Hübner & Marcus Klemm, 2015. "Preferences over inflation and unemployment in Europe: a north–south divide?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 62(4), pages 319-335, December.
    12. Buelens, Christian, 2025. "Googling ‘inflation’: Household inflation attention across the euro area," European Journal of Political Economy, Elsevier, vol. 89(C).
    13. Alesina, Alberto F & Grilli, Vittorio, 1993. "On the Feasibility of a One- or Multi-Speed European Monetary Union," CEPR Discussion Papers 792, C.E.P.R. Discussion Papers.
    14. Hayo, Bernd & Hefeker, Carsten, 2002. "Reconsidering central bank independence," European Journal of Political Economy, Elsevier, vol. 18(4), pages 653-674, November.

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General

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