The paper aims to develop understanding of why and how central banks have intervened in foreign exchange markets, and whether intervention was (i) coordinated, (ii) sterilized, and (iii) effective. The experience in the G-3 context is compared with the past EMS experience. In addition to foreign...

The stability of the EMS depends crucially on the realignment expectations of market participants. In this paper we discuss how to measure such expectations and how to relate them to economic fundamentals, central bank reputation, and the institutional arrangements of the EMS. We find the...

The paper empirically analyzes asymmetries in the EMS with special reference to their implication for the creation of a monetary union (EMU). Two types of asymmetries are analyzed: those in the form of "German dominance" are detected in the conduct of monetary policies in the EMS, in particular...

The renewed quest for a European monetary union raises the question: Is Europe ready for a common currency? We compare the variability and persistence of real exchange rate fluctuations within the German monetary union and between Germany and eight European countries to assess the viability of a...

We use time-series methods to estimate a simple aggregate supply and demand model in order to analyse the comparative performance of fixed and flexible exchange rate systems and test competing hypotheses designed to explain shifts between exchange rate regimes. The paper provides a coherent...

In credible target zone regimes, exchange rates should, according to Krugman's 1991 theory, spend a disproportionate amount of time near the edges of the fluctuation band. The major application of this theory has been to the European Monetary System (EMS), with several authors reporting that...

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...

The purpose of this paper is to provide a framework for the analysis of policy-makers' choices regarding unilateral exchange rate bands. Exchange rate bands are viewed as the outcome of an optimization problem by a policy-maker whose objective function weighs the level of the real exchange rate...

We examine the expected survival time of a unilateral exchange rate target zone, when constraints on monetary policy prevent the central bank from exclusively focusing on defending the target zone. In general, the width of the target zone has a negligible effect on the expected survival time,...

Many recent papers suggest that the basic flex-price target zone model does not perform well empirically. This paper derives some of the testable implications of a sticky-price target zone model in order to determine whether the assumption of perfect price flexibility explains the empirical...