estimates of realignment and intervention probabilities obtained from daily German mark EMS exchange rates indicate that … realignment probabilities in the EMS have recently declined drastically and that the system is now close to being a fully credible … switching are discussed and their relevance for the European Monetary System (EMS) is evaluated by using Bayesian inference. The …

The foreign exchange risk premium in an exchange rate target-zone regime with devaluation/realignment risks is derived … devaluation/realignment risk, is taken into account. The risk premium is then the sum of two separate risk premia, arising from …/realignments are larger but still relatively small proportions of the expected rate of devaluation/realignment. …

both decreasing in the time to maturity. Devaluation/realignment risks are incorporated and imply upward shifts of the …

financial data since the inception of the EMS. It is difficult to find economically meaningful relationships between realignment …Realignment expectations which measure exchange rate credibility are analysed for European exchange rates using daily … movements to realignment expectations are common to ERM participants. There were few indications of poor ERM credibility before …

The stability of the EMS depends crucially on the realignment expectations of market participants. In this paper we … institutional arrangements of the EMS. We find the following empirical regularities for FF/DM and IL/DM exchange rates: (1) expected … negatively related to the length of time since last realignment in the short and medium run; (3) the Basle-Nyborg agreements seem …

The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutschmark, for the …

context. To this purpose, we extend to a selected group of long term EMS currencies the empirical investigation carried out in … market efficiency, although the above result cannot be generalized to all EMS currencies. Whenever the credibility of a …

The credibility of exchange rate target zones for four EMS countries for the period March 1979-September 1992 is … did not predict the September 1992 EMS crisis. However, we find that electoral and other institutional variables improve …