The Credibility of Nordic Exchange Rate Bands: 1987-91

Abstract

The credibility of the exchange rate bands in the Nordic countries during 1987-91 is examined with two tests. The results suggest that the credibility of Finland`s exchange rate band within a twelve-month horizon could not be rejected except in the fall of 1991; however, the band lacked credibility within a five-year horizon throughout the period. Denmark`s and Norway`s bands lacked both short- and long-term credibility at the beginning of the period, but credibility could not be rejected from 1989 for Norway and as of 1990 for Denmark. The credibility of Sweden`s band within a one-year horizon could not be rejected up to fall 1989, but thereafter its credibility deteriorated sharply.

JEL Classification: F31, F33