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European Exchange Rate Credibility Before the Fall

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  • Rose, Andrew K
  • Svensson, Lars E O

Abstract

Realignment expectations which measure exchange rate credibility are analysed for European exchange rates using daily financial data since the inception of the EMS. It is difficult to find economically meaningful relationships between realignment expectations and macroeconomic variables, although there are signs that lower inflation improves credibility. Statistically, many movements to realignment expectations are common to ERM participants. There were few indications of poor ERM credibility before late August 1992; the dimensions of the currency crisis of September 1992 appear to have taken both policy-makers and private agents largely by surprise.

Suggested Citation

  • Rose, Andrew K & Svensson, Lars E O, 1993. "European Exchange Rate Credibility Before the Fall," CEPR Discussion Papers 852, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:852
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    More about this item

    Keywords

    Currency Crisis; EMS; ERM; Expectations; Realignment;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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