Article information
Abstract
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 first years 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
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The authors are very grateful to the editor and two anonymous referees for useful comments and suggestions on a previous draft of this paper, substantially improving the content and quality of the paper. Financial support from the Spanish Ministry of Science and Technology (SEJ2005-09094/ECON) is also gratefully acknowledged. The views expressed here are those of the authors and not necessarily those of the institutions with which they.
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