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Whether to join EMS or not: Signalling and the membership

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  • Haaparanta, Pertti

Abstract

It is argued that if in a dynamic context a central bank wants to signal its commitment to non-inflationary policies an EMS membership makes its task easier by requiring less restrictive policies than if it stays outo Despite this depending on the initial beliefs of the public the central bank may not like to be an EMS member. It is also shown that the EMS membership has partial signalling value in that the public thinks that a central bank choosing EMS is non-inflationary with a higher probability than a bank staying outside.

Suggested Citation

  • Haaparanta, Pertti, 1990. "Whether to join EMS or not: Signalling and the membership," Bank of Finland Research Discussion Papers 9/1990, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1990_009
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    References listed on IDEAS

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    1. Tarkka, Juha & Willman, Alpo, 1990. "Financial markets in the BOF4 model of the Finnish economy," Research Discussion Papers 1/1990, Bank of Finland.
    2. Gustavsson, Camilla, 1990. "Taxation of personal interest income in 18 OECD countries," Research Discussion Papers 8/1990, Bank of Finland.
    3. Vickers, John, 1986. "Signalling in a Model of Monetary Policy with Incomplete Information," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 443-455, November.
    4. Francesco Giavazzi & Marco Pagano, 1991. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 303-330, National Bureau of Economic Research, Inc.
    5. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-538, June.
    6. Tarkka, Juha & Willman, Alpo, 1990. "Income distribution and government finances in the BOF4 model of the Finnish economy," Research Discussion Papers 7/1990, Bank of Finland.
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