The Credibility of the European Monetary System: A Review
Estudios de Economia Espanola Working Paper No. 179
26 Pages Posted: 14 Apr 2004
Date Written: March 2004
The paper presents an overview of several studies about the credibility of the European Monetary System (EMS). These studies compare different credibility indicators in terms of their ability to detect exchange rate crises in a target zone. Marginal credibility seems to be the best measure for capturing the main events. The credibility indices are also applied to the short experience of the current ERM-II. The history of the EMS suggests that, in an environment of financial deregulation and high capital flows, such an exchange rate system can only operate as a temporary regime that is moving towards a full monetary union, since it may be too fragile as a permanent monetary regime.
Keywords: Credibility, Exchange Rates, Target Zones, European Monetary System
JEL Classification: C52, F31
Suggested Citation: Suggested Citation