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

See all articles by Francisco Ledesma Rodríguez

Francisco Ledesma Rodríguez

University of La Laguna - Department of Applied Economics

Jorge Pérez Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

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

Ledesma Rodríguez, Francisco J. and Pérez Rodríguez, Jorge and Sosvilla-Rivero, Simon, An Empirical Examination of Exchange-Rate Credibility Determinants in the EMS (March 2004). FEDEA International Economics & Finance DEFI Working Paper No. 04-01. Available at SSRN: https://ssrn.com/abstract=520722 or http://dx.doi.org/10.2139/ssrn.520722

Francisco J. Ledesma Rodríguez

University of La Laguna - Department of Applied Economics ( email )

Facultad de Ciencias Economicas
Campus de Guajara
38071 La Laguna
Spain
+34 922 31 71 19 (Phone)
+34 922 31 78 53 (Fax)

Jorge Pérez Rodríguez

University of Las Palmas de Gran Canaria - Faculty of Economic Science ( email )

Dpto. de Metodos Cuantitativo Campus de Tafira, Tafira Baja
E-35017 Las Palmas
Spain
+34 928 458222 (Phone)
+34 928-458225 / 1829 (Fax)

HOME PAGE: http://fcee.ulpgc.es/~jorge/

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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