IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Financial and Currency Integration in the European Monetary System: The Statistical Record

  • Jeff Frankel, Steve Phillips, and Menzie Chinn.

The paper documents econometrically the trend toward financial and monetary integration among the countries of the EMS. The first half of the paper examines return differentials among European countries. Short-term nominal interest differentials have fallen. What is the role of county factors (e.g., capital controls) versus currency factors (e.g., exchange risk premia)? To find out, we look directly at covered interest differentials, measured with the aid of forward rate data, and exchange risk premia, measured with the aid of survey data on exchange rate expectations. The second half of the paper examines the credibility of the EMS, essentially updating the results and condensing the presentation in "The European Monetary System: Credible at Last?" We find evidence that the danger of realignment perceived by investors was lower in 1990-91 than previously. The overall conclusion is that all components of the interest differential fell during the course of the 1980s.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: main text
Download Restriction: no

Paper provided by University of California at Berkeley in its series Center for International and Development Economics Research (CIDER) Working Papers with number C92-005.

in new window

Date of creation: 01 Mar 1992
Date of revision:
Handle: RePEc:ucb:calbcd:c92-005
Contact details of provider: Postal:
University of California at Berkeley, Berkeley, CA USA

Phone: 510-642-0822
Fax: 510-642-6615
Web page:

More information through EDIRC

Order Information: Postal: IBER, F502 Haas Building, University of California at Berkeley, Berkeley CA 94720-1922

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.:

as in new window
  1. Svensson, Lars E. O., 1992. "The foreign exchange risk premium in a target zone with devaluation risk," Journal of International Economics, Elsevier, vol. 33(1-2), pages 21-40, August.
  2. Giovannini, Alberto & Jorion, Philippe, 1989. " The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets," Journal of Finance, American Finance Association, vol. 44(2), pages 307-25, June.
  3. Flood, Robert P. & Rose, Andrew K. & Mathieson, Donald J., 1991. "An empirical exploration of exchange-rate target-zones," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 35(1), pages 7-65, January.
  4. Frankel, Jeffrey A & Chinn, Menzie D, 1993. "Exchange Rate Expectations and the Risk Premium: Tests for a Cross Section of 17 Currencies," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 136-44, June.
  5. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Forward Discount Bias: Is it an Exchange Risk Premium?," The Quarterly Journal of Economics, Oxford University Press, vol. 104(1), pages 139-161.
  6. Lars E.O. Svensson, 1990. "The Simplest Test of Target Zone Credibility," NBER Working Papers 3394, National Bureau of Economic Research, Inc.
  7. Rogoff, Kenneth, 1985. "Can exchange rate predictability be achieved without monetary convergence? : Evidence from the EMS," European Economic Review, Elsevier, vol. 28(1-2), pages 93-115.
  8. Andrew K. Rose & Lars E. O. Svensson, 1991. "Expected and predicted realignments: the FF/DM exchange rate during the EMS," International Finance Discussion Papers 395, Board of Governors of the Federal Reserve System (U.S.).
  9. Alberto Giovannini, 1990. "European Monetary Reform: Progress and Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 217-292.
  10. Hodrick, Robert J. & Srivastava, Sanjay, 1986. "The covariation of risk premiums and expected future spot exchange rates," Journal of International Money and Finance, Elsevier, vol. 5(1, Supple), pages S5-S21, March.
  11. Giovannini, Alberto, 1988. "The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets," CEPR Discussion Papers 228, C.E.P.R. Discussion Papers.
  12. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-84, April.
  13. Robert P. Flood & Andrew K. Rose & Donald J. Mathieson, 1990. "Is the EMS the perfect fix? An empirical exploration of exchange rate target zones," International Finance Discussion Papers 388, Board of Governors of the Federal Reserve System (U.S.).
  14. Fama, Eugene F., 1984. "Forward and spot exchange rates," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 319-338, November.
  15. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ucb:calbcd:c92-005. 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: (Christopher F. Baum)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.