Revisiting the European Monetary System Experience: Were Some Members More Equal than Others?

22 Pages Posted: 19 Sep 2006

Abstract

Difficulties in implementing effective liquidity support to counter speculative attacks may partly explain why regional exchange rate agreements crawl regional trade integration. Our novel analysis of the European Monetary System confirms that liquidity support was provided under the discretion of the anchor country (Germany), and was indeed asymmetric across member countries and/or periods. In particular, it was less forthcoming (i) to countries further away from Germany (less politically influential there), (ii) to larger countries (interfering more with the Bundesbank's monetary control) and (iii) during periods when German inflation accelerated (and the Bundesbank needed a firmer grip on liquidity).

Suggested Citation

Bini Smaghi, Lorenzo and Ferri, Giovanni, Revisiting the European Monetary System Experience: Were Some Members More Equal than Others?. Economic Notes, Vol. 35, No. 2, pp. 151-172, July 2006. Available at SSRN: https://ssrn.com/abstract=931536 or http://dx.doi.org/10.1111/j.1468-0300.2006.00162.x

Lorenzo Bini Smaghi

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

HOME PAGE: http://www.ecb.int/ecb/orga/decisions/html/cvbinismaghi.en.html

Giovanni Ferri (Contact Author)

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

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