An Empirical Examination of Exchange-Rate Credibility Determinants in the EMS
FEDEA International Economics & Finance DEFI Working Paper No. 04-01
8 Pages Posted: 29 Mar 2004
Date Written: March 2004
Abstract
This paper provides empirical evidence on the determinants of exchange rate credibility under the European Monetary System (EMS). To that end, we have considered both economic variables and political factors using data of eight currencies participating in the Exchange Rate Mechanism, covering the complete EMS history (1979-1998). Our results suggest that the level of international reserves, the real interest rate and right-wing governments would have positively affected the credibility of a given central parity, while the unemployment rate and the inflation rate would have negative influenced such credibility.
Keywords: Credibility, political variables, exchange rates, european monetary system
JEL Classification: C32, D72, F31, F33
Suggested Citation: Suggested Citation