This paper considers the evidence for volatility clustering and transmission in six bilateral Deutsche mark ERM exchange rates. Data on daily exchange rate changes are described by a mixture of two normal distributions. One of these contains observations of volatile exchange rate changes while...

Most interpretations of the Exchange Rate Mechanism crisis of 1992/3 ignore the key role played by structural policy spillovers among European countries, and overlook the effects of coordination (or lack thereof) of monetary and exchange rate policies among the countries making up the periphery...

Using Krugman's (1991) target zone model, we find an explicit, sub-game perfect solution for a central bank wishing to stabilize the exchange rate given proportional costs of intervention. We demonstrate, however, that precommitment to narrower bands would yield a welfare gain - which provides a...

The paper reports strikingly high correlations of the cyclical components of industrial production between the participant countries in the ERM. Supplementing these correlations with criteria based on real exchange rate volatility, trade and monetary policy conformity, cluster analysis is used...

Realignment expectations which measure exchange rate credibility are analysed for European exchange rates using daily financial data since the inception of the EMS. It is difficult to find economically meaningful relationships between realignment expectations and macroeconomic variables,...

This paper addresses the issue of the transition from Stage Two of EMU to Stage Three. The criteria established in the Maastricht Treaty for this transition include an ERM qualification. Under this criterion a participating country would have had to maintain its position in the normal bands of...

Existing models of exchange rate crises do not provide a good explanation for the breakdown of the ERM in 1992<196>3. This paper presents an alternative model which captures some of the important features of that period. The switch from a fixed to a floating rate is triggered by an optimizing...</196>

This paper discusses what we have learned from last year's currency crises in the ERM and Nordic countries about fixed exchange rates as a means to achieve price stability. After discussing the explanations for the crises, the paper concludes that fixed exchange rates are not a short cut to...

A salient feature of recent currency speculations in the European Exchange Rate Mechanism is that the speculators can be big strategic players in the market, along with the central bank. This paper develops a game-theoretic model that captures this feature of the speculative market. For a regime...

This paper presents an empirical analysis of speculative attacks on pegged exchange rates in 22 countries between 1967 and 1992. We define speculative attacks or crises as large movements in exchange rates, interest rates, and international reserves. We develop stylized facts concerning the...