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A long-run view of the european monetary system

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  • Hali J. Edison
  • Eric Fisher

Abstract

This paper analyzes the exchange rates and consumer price indices of the six largest countries of the European Monetary System (EMS). The analysis covers the entire period of floating exchange rates. This paper shows that many of the implied real exchange rates have unit roots, even when one allows for the possibility of a structural break occurring at the time of the formation of the EMS. Further, prices and exchange rates are not co-integrated during the EMS period. There is strong evidence that there is a quadratic time trend in these price indices and weak evidence that Exchange rates and prices were more highly co-integrated before the advent of the EMS. The data suggest that the eleven realignments of the EMS between 1979 and 1988 have not served fully to offset the member countries' inflation differentials.

Suggested Citation

  • Hali J. Edison & Eric Fisher, 1989. "A long-run view of the european monetary system," International Finance Discussion Papers 339, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:339
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    References listed on IDEAS

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    1. Edison, Hali J., 1985. "Purchasing power parity: A quantitative reassessment of the 1920s experience," Journal of International Money and Finance, Elsevier, vol. 4(3), pages 361-372, September.
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    4. Edison, Hali J & Klovland, Jan Tore, 1987. "A Quantitative Reassessment of the Purchasing Power Parity Hypothesis: Evidence from Norway and the United Kingdom," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 2(4), pages 309-333, October.
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