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The Credibility of the United Kingdom's Commitment to the ERM : Intentions versus Actions

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  • Masson, Paul R

Abstract

The paper presents estimates of a model of the credibility of the U.K. commitment to its central parity against the deutsch mark during the period of ERM membership (1990-92). The measure of credibility used is the long term, interest differential with Germany. Credibility is decomposed into two aspects ; an assessment of whether the government was truly committed to the ERM, and the probability that even a committed government would be able to continue to bear the unemployment costs. Doubts about the first aspect which could lead to a self-fulfilling crises - are shown to have declined steadily during the period of ERM membership, while the second aspect is estimated to have become increasingly important, due to rising unemployment.

Suggested Citation

  • Masson, Paul R, 1994. "The Credibility of the United Kingdom's Commitment to the ERM : Intentions versus Actions," The Warwick Economics Research Paper Series (TWERPS) 430, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:430
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1989-1994/twerp430.pdf
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    Cited by:

    1. Claude Diebolt & Mamoudou Toure & Jamel Trabelsi, 2012. "Monetary Credibility Effects on Inflation Dynamics: A Macrohistorical Case Study," Working Papers 12-04, Association Française de Cliométrie (AFC).
    2. Schor, Armand-Denis, 2000. "La théorie des zones monétaires optimales : l’optimum, le praticable, le crédible et le réel," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 545-576, décembre.

    More about this item

    Keywords

    EMS ; monetary policy ; exchange rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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