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The `Walters' Critique of the EMS: A Case of Inconsistent Expectations

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  • Miller, Marcus
  • Sutherland, Alan

Abstract

Alan Walters has suggested that the European Monetary System will prove dynamically unstable when capital controls are removed. The argument is analysed within a model that includes overlapping contracts. It is found that the short-run effects predicted by Walters only arise when the credibility of the peg differs as between the labour and financial markets: but even if such a difference exists the system is stable in the long run.

Suggested Citation

  • Miller, Marcus & Sutherland, Alan, 1990. "The `Walters' Critique of the EMS: A Case of Inconsistent Expectations," CEPR Discussion Papers 480, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:480
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    References listed on IDEAS

    as
    1. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    2. Giavazzi, Francesco & Spaventa, Luigi, 1990. "The `New' EMS," CEPR Discussion Papers 369, C.E.P.R. Discussion Papers.
    3. Miller, Marcus & Sutherland, Alan, 1990. "Britain's Return to Gold and Entry into the EMS: Expectations, Joining Conditions and Credibility," CEPR Discussion Papers 465, C.E.P.R. Discussion Papers.
    4. Miller, Marcus & Sutherland, Alan, 1990. "Britain's Return to Gold and Impending Entry into the EMS: Expectations, Joining Conditions and Credibility," Economic Research Papers 268481, University of Warwick - Department of Economics.
    5. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, April.
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    1. Esto hay que pagarlo: la historia de los tres cerditos y el lobo II
      by Cives in Politikon on 2012-05-09 17:00:00

    Citations

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    Cited by:

    1. Svensson, Lars E. O., 1994. "Fixed exchange rates as a means to price stability: What have we learned?," European Economic Review, Elsevier, vol. 38(3-4), pages 447-468, April.
    2. Hassapis, Christis & Pittis, Nikitas & Prodromidis, Kyprianos, 1999. "Unit roots and Granger causality in the EMS interest rates: the German Dominance Hypothesis revisited," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 47-73, January.
    3. Alan Ahearne & Juan Delgado & Jakob von Weizsäcker, 2008. "A tail of two countries," Policy Briefs 6, Bruegel.
    4. Vines, David & Wren-Lewis, Simon & Kirsanova, Tatiana, 2006. "Fiscal Policy and Macroeconomic Stability Within a Currency Union," CEPR Discussion Papers 5584, C.E.P.R. Discussion Papers.
    5. Paolo Giovane & Lorenzo Bini-Smashi, 1996. "Convergence of inflation: A necessary prerequisite for EMU?," Open Economies Review, Springer, vol. 7(2), pages 117-126, April.
    6. Oliver Landmann, 2009. "EMU@10: Coping with Rotating Slumps," Discussion Paper Series 9, Department of International Economic Policy, University of Freiburg, revised Jul 2009.
    7. Bini-Smaghi, Lorenzo & Del Giovane, Paolo, 1996. "Convergence of inflation and interest rates prior to EMU: An empirical analysis," Journal of Policy Modeling, Elsevier, vol. 18(4), pages 377-395, August.
    8. Bonatti, Luigi & Fracasso, Andrea, 2019. "Policy inertia, self-defeating expectations and structural reforms: can policy modeling cope?," Journal of Policy Modeling, Elsevier, vol. 41(5), pages 943-962.
    9. von Hagen, Jurgen & Hofmann, Boris, 2004. "Macroeconomic implications of low inflation in the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 5-23, March.
    10. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2007. "Chapter 2: Macroeonomic adjustment in the euro area – the cases of Ireland and Italy," EEAG Report on the European Economy, CESifo, vol. 0, pages 59-72, February.
    11. Oliver Landmann, 2012. "Rotating Slumps in a Monetary Union," Open Economies Review, Springer, vol. 23(2), pages 303-317, April.

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