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European monetary arrangements: Implications for the dollar, exchange rate variability and credibility
Author(s) -
Edison Mali J.,
Kole Linda S.
Publication year - 1995
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.1995.tb00007.x
Subject(s) - credibility , liberian dollar , monetary economics , economics , us dollar , german , exchange rate , interest rate , monetary policy , interest rate parity , international economics , political science , finance , geography , archaeology , law
This paper uses the recent history of the ERM to gain insights into what might happen to exchange rates on the road to EMU. to do this, the paper examines the variability of exchange rates, the transmission of monetary policy between countries, the role of the dollar in ERM exchange rate crises, and ERM members' credibility as measured by the realignment probabilities prior to the September 1992 crisis. We identify two factors that might have contributed to the September 1992 crisis: high German interest rates and weakness of the US dollar. We find that behaviour of exchange rates has changed over time and differs between ERM and non‐ERM currencies. We also demonstrate that changes in German short‐term interest rates influence interest rates in other ERM countries and vice versa.