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Macroeconomic Fundamentals and Exchange Rate Credibility. Further Evidence on the Italian Experience from a Regime‐switching Approach

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  • Marco Tronzano

Abstract

This paper explores the links between exchange rate credibility and macroeconomic fundamentals with reference to the Italian experience during the first half of the 90’s. The analysis relies on a nonlinear framework emphasizing shifts between credible and not credible states, and assuming a significant degree of persistence in the above regimes. We detect a significant influence of a cumulative loss in external competitiveness and of real output dynamics on devaluation expectations. While supporting the cautious monetary policy stance taken by monetary authorities during the transition phase following Italy’s re‐entry in the EMS, our evidence suggests that structural supply‐side policies will become crucial, in the years ahead, to ensure a credible and lasting permanence of Italy inside the EMU.

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  • Marco Tronzano, 2001. "Macroeconomic Fundamentals and Exchange Rate Credibility. Further Evidence on the Italian Experience from a Regime‐switching Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(4), pages 442-460, September.
    • Handle: RePEc:bla:scotjp:v:48:y:2001:i:4:p:442-460
    DOI: 10.1111/1467-9485.00208
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    Cited by:

    1. Michael Frömmel, 2010. "Volatility Regimes in Central and Eastern European Countries’ Exchange Rates," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(1), pages 2-21, February.
    2. Jamshaid ur Rehman & Tasneem Zafar & Shabbir Ahmad & Aftab Anwar, 2022. "In Search of Common Currency Anchor for ASEAN+3+3 Countries," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(3), pages 237-264, September.

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