Credibility and Disinflation in the European Monetary System

17 Pages Posted: 28 Jan 2012

See all articles by Michael Bleaney

Michael Bleaney

University of Nottingham - School of Economics

Paul Mizen

University of Nottingham; Bank of England; Centre for Economic Policy Research (CEPR)

Date Written: November 1997

Abstract

Analysis of interest differentials in the European Monetary System has suggested a widespread lack of credibility of the Exchange Rate Mechanism in the sense that in most countries the implicit expected rate of devaluation was significant and not far short of inflation differentials vis‐à‐vis the deutschmark. We present and test a model in which prices reflect expectations of exchange rate behaviour. The results provide mixed evidence that price‐setting in countries which participated in the ERM was influenced by the exchange rate discipline.

Suggested Citation

Bleaney, Michael and Mizen, Paul, Credibility and Disinflation in the European Monetary System (November 1997). The Economic Journal, Vol. 107, Issue 445, pp. 1751-1767, 1997, Available at SSRN: https://ssrn.com/abstract=1994227 or http://dx.doi.org/10.1111/j.1468-0297.1997.tb00079.x

Michael Bleaney (Contact Author)

University of Nottingham - School of Economics ( email )

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Paul Mizen

University of Nottingham ( email )

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United Kingdom
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+44 115 951 4159 (Fax)

Bank of England

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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