TY  - JOUR
AU  - Frankel,Jeffrey
AU  - Phillips,Steven
TI  - The European Monetary System:  Credible at Last?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3819
PY  - 1994
Y2  - January 1994
UR  - http://www.nber.org/papers/w3819
L1  - http://www.nber.org/papers/w3819.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu
AB  - We update tests of the credibility of the EMS exchange rate target zones. Our main methodological innovation is to use a survey of exchange rate forecasts, as well as interest differentials, in measuring exchange rate expectations. We investigate the hypothesis -- suggested by the apparent stabilization of the EMS and by recent institutional developments -- that the EMS target zones have experienced an increase in credibility since their 1987 realignment. The evidence tends to support this hypothesis for most currencies. We also examine the empirical failure of standard target zone models, but find no evidence that it can be attributed to mismeasurement of expectations. Finally, we consider an alternative credibility measure which captures the importance of possible realignments in overall expectations of exchange rate changes.
ER  -