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The Effect of the ERMon Participating Economies

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  • Mr. Tamim Bayoumi

Abstract

The effect of membership of the ERM on macroeconomic performance is analyzed using vector autoregression techniques. The results indicate that while the ERM has had little effect on the nature of the shocks hitting the economies, it has had a significant effect on the response of member countries to these shocks. In addition, long-time members of the ERM have significantly more correlated shocks than other countries. These results conform to the thesis that the ERM represents a move by countries with relatively similar underlying shocks to coordinate macroeconomic policy.

Suggested Citation

  • Mr. Tamim Bayoumi, 1991. "The Effect of the ERMon Participating Economies," IMF Working Papers 1991/086, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/086
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    Keywords

    WP; exchange rate; ERM member; supply curve; open economy; ERM correlation coefficients; demand and supply shock; ERM country; supply and demand demand shock; Supply shocks; Exchange rate arrangements; Conventional peg; Floating exchange rates; Exchange rate flexibility; Europe;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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