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Revisiting the European Monetary System Experience: Were Some Members More Equal than Others?
Author(s) -
Bini Smaghi Lorenzo,
Ferri Giovanni
Publication year - 2006
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/j.1468-0300.2006.00162.x
Subject(s) - market liquidity , economics , discretion , inflation (cosmology) , german , monetary economics , international economics , exchange rate , political science , physics , archaeology , theoretical physics , law , history
Difficulties in implementing effective liquidity support – to counter speculative attacks – may partly explain why regional exchange rate agreements crawl regional trade integration. Our novel analysis of the European Monetary System confirms that liquidity support was provided under the discretion of the anchor country (Germany), and was indeed asymmetric across member countries and/or periods. In particular, it was less forthcoming (i) to countries further away from Germany (less politically influential there), (ii) to larger countries (interfering more with the Bundesbank's monetary control) and (iii) during periods when German inflation accelerated (and the Bundesbank needed a firmer grip on liquidity).