This paper applies a full-information technique to test for the presence of contagion across the money markets of ERM members. We show that whenever it is possible to estimate a model for interdependence, a test for contagion based o a full information technique is more powerful. We test for the...

Testing the hypothesis that international equity market correlation increases in volatile times is a difficult exercise and misleading results have often been reported in the past because of a spurious relationship between correlation and volatility. This paper focuses on extreme correlation,...

This paper relates the volatility of the (trade-weighted) effective real exchange rate to the degree of trade openness of an economy. The theoretical part presents an intertemporal monetary model with nominal labour (factor) market rigidities. Both monetary and aggregate supply shocks are shown...

The paper analyzes foreign investment and asset prices in a context of uncertainty over future government policy. The model endogenizes the process of learning by foreign investors facing a potentially opportunistic government, which chooses strategically the timing of a policy reversal in order...

Fixed exchange rates are less volatile than floating rates. The volatility of macroeconomic variables, such as money and output, does not change very much across exchange rate regimes, however. This suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be...

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,...