IDEAS home Printed from
   My bibliography  Save this paper

Unsustainable Parities: The Exchange Rate Mechanism in Turmoil


  • Mary Davis


An examination of ERM parities demonstrates that several currencies were misaligned due to disparate performance regarding inflation. Overvalued currencies partly explain the existence of economic imbalances, such as large fiscal and current account defecits and high unemployment. These imbalances, combined with the shocks emanating from German economic and monetary union, rendered existing parities unsustainable. The European Union does not yet satisfy the criteria for an optimal currency area; labour is immobile, fiscal federalism is absent, asymmetric shocks are still possible. A European Monetary Union will not be possible until economic convergence is a reality rather than an aspiration.

Suggested Citation

  • Mary Davis, 1994. "Unsustainable Parities: The Exchange Rate Mechanism in Turmoil," Economics Policy Papers 943, Trinity College Dublin, Department of Economics.
  • Handle: RePEc:tcd:tcduep:943

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions


    Access and download statistics


    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:tcd:tcduep:943. 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: (Patricia Hughes) or (Ilker Cakar). 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.