Attitudes Towards Inflation and the Viability of Fixed Exchange Rates: Evidence from the EMS

52 Pages Posted: 28 Dec 2006 Last revised: 12 Aug 2010

See all articles by Susan M. Collins

Susan M. Collins

affiliation not provided to SSRN

Francesco Giavazzi

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: April 1992

Abstract

History provides us with many examples of multiple country fixed exchange rate regimes that have eventually fallen apart. In light of these failures, why has the EMS been so successful in stabilizing exchange rates among members, and in expanding its membership? This paper argues that one key aspect of the explanation lies in a convergence in attitudes toward inflation and unemployment among EMS members since the late 1970s. This paper presents new empirical evidence for this convergence using household survey data for eight European countries during 1974-90. We find evidence that initially high inflation countries -- France and Italy -- have experienced a decrease in tolerance for inflation relative to unemployment. Germany and other low inflation countries, in contrast, appear to have experienced a decrease in tolerance for unemployment. The paper also contains a theoretical section that illustrates why shifts in attitudes of voters within a given country might lead that country to join a fixed exchange rate regime.

Suggested Citation

Collins, Susan M. and Giavazzi, Francesco, Attitudes Towards Inflation and the Viability of Fixed Exchange Rates: Evidence from the EMS (April 1992). NBER Working Paper No. w4057. Available at SSRN: https://ssrn.com/abstract=476173

Susan M. Collins

affiliation not provided to SSRN

Francesco Giavazzi (Contact Author)

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

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Centre for Economic Policy Research (CEPR)

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