Monetary and Exchange Rate Stability at the EU Mediterranean Borders

33 Pages Posted: 24 Jul 2007

See all articles by Bernhard Herz

Bernhard Herz

University of Bayreuth

Christian Bauer

University of Trier; Universität Trier

Date Written: December 2004

Abstract

Stabilizing the exchange rate is a major monetary policy goal in a number of Mediterranean countries. We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize de facto exchange rate regimes and to derive a market based measure of the credibility of these exchange rate regimes. In our empirical analysis we compare the exchange rate policies of seven non European Mediterranean countries, Algeria, Egypt, Israel, Libya, Morocco, Turkey and Tunisia, with the benchmark of four European non EU countries namely Albania, Bulgaria, Croatia, and Romania. Our results indicate that the fundamental volatility of the market based exchange rates is quite moderate and that markets assign a moderate degree of credibility to the exchange rate management of most of the countries.

Keywords: monetary policy, exchange rate policy, credibility, Mediterranean, Eastern Europe, technical tradingmonetary policy, exchange rate policy, credibility, Mediterranean, Eastern Europe, technical trading

JEL Classification: D84, E42, F31

Suggested Citation

Herz, Bernhard and Bauer, Christian, Monetary and Exchange Rate Stability at the EU Mediterranean Borders (December 2004). Available at SSRN: https://ssrn.com/abstract=1002584 or http://dx.doi.org/10.2139/ssrn.1002584

Bernhard Herz (Contact Author)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Christian Bauer

University of Trier ( email )

15, Universitaetsring
Trier, 54286
Germany

Universität Trier ( email )

Germany

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