Collapses of Fixed Exchange-Rate Regimes as Breakdown in Cooperation: the EMS in 1992-1993 and the Transition to EMU
dc.contributor.author | De Arcangelis, Giuseppe | en_US |
dc.date.accessioned | 2013-11-14T23:20:25Z | |
dc.date.available | 2013-11-14T23:20:25Z | |
dc.date.issued | 1995-10 | en_US |
dc.identifier.other | MichU DeptE CenREST W95-04 | en_US |
dc.identifier.other | F310 | en_US |
dc.identifier.other | F330 | en_US |
dc.identifier.other | F410 | en_US |
dc.identifier.uri | https://hdl.handle.net/2027.42/100672 | |
dc.description.abstract | In this paper the collapse of a bilateral fixed exchange-rate regime is described as the optimizing decision of the two countries' monetary authorities on when to break down the cooperative exchange-rate agreement. In particular, the two countries experience a trade-off between (a) fixing the nominal exchange rate, and therefore losing monetary independence, but having exogenous benefits from the agreement, and (b) letting the nominal exchange rate freely fluctuate so as to isolate the countries from asymmetric shocks on nominal variables. The paper derives the optimal exit decision in a stochastic framework when there are exogenous and irreversible benefits from the fixed exchange-rate regime. As a result, the agreement tends to last longer than it would in a deterministic framework even though big asymmetric shocks hit the two countries. This could well describe why the exchange-rate arrangement among the European countries (i.e. the Exchange Rate Mechanism of the European Monetary System) lasted so long with no realignments after 1987. In particular, the crisis occurred a few years after both German Monetary Unification and the burst of the last European recession. | en_US |
dc.description.sponsorship | Center for Research on Economic and Social Theory, Department of Economics, University of Michigan | en_US |
dc.relation.ispartofseries | Working Paper | en_US |
dc.subject | Fixed Exchange Rates | en_US |
dc.subject | Monetary Policy Coordination | en_US |
dc.subject | European Monetary System | en_US |
dc.subject | Optimal Stopping Rules | en_US |
dc.subject.other | Foreign Exchange | en_US |
dc.subject.other | International Monetary Arrangements and Institutions | en_US |
dc.subject.other | Open Economy Macroeconomics | en_US |
dc.subject.other | EMU, Germany | en_US |
dc.title | Collapses of Fixed Exchange-Rate Regimes as Breakdown in Cooperation: the EMS in 1992-1993 and the Transition to EMU | en_US |
dc.type | Working Paper | en_US |
dc.subject.hlbsecondlevel | Economics | en_US |
dc.subject.hlbtoplevel | Social Sciences | en_US |
dc.description.bitstreamurl | http://deepblue.lib.umich.edu/bitstream/2027.42/100672/1/ECON145.pdf | |
dc.owningcollname | Economics, Department of - Working Papers Series |
Files in this item
-
Economics, Department of - Working Papers Series
Working papers from the Department of Economics
Remediation of Harmful Language
The University of Michigan Library aims to describe library materials in a way that respects the people and communities who create, use, and are represented in our collections. Report harmful or offensive language in catalog records, finding aids, or elsewhere in our collections anonymously through our metadata feedback form. More information at Remediation of Harmful Language.
Accessibility
If you are unable to use this file in its current format, please select the Contact Us link and we can modify it to make it more accessible to you.