Download This PaperMonetary Policy Interaction within the EMS
40 Pages Posted: 15 Feb 2006
Date Written: January 26, 1989
Abstract
A simple two-country stochastic model is used to analyze monetary policy interaction in a system of exchange rate bands such as the EMS, in the context of internationally-integrated financial markets. We consider the widely-acknowledged asymmetry of the system, as it pertains to member countries` use of monetary policy to offset shocks that impinge on their national incomes. Our results suggest, among other things, that tightening the exchange-rate bands would lead to more intervention by all members, even if formal responsibility for keeping exchange rates within the bands lay only with the peripheral countries.
JEL Classification: 1331, 3116, 4314, 4320
Suggested Citation: Suggested Citation
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