NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

European Exchange Rate Credibility Before the Fall

Andrew K. Rose, Lars E.O. Svensson

NBER Working Paper No. 4495
Issued in October 1993
NBER Program(s):   IFM

Realignment expectations which measure exchange rate credibility are analyzed 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, although there are signs that lower inflation improves credibility. Statistically, many movements to realignment expectations are common to ERM participants. There were few indications of poor ERM credibility before late August 1992; the dimensions of the currency crisis of September 1992 appear to have taken both policy-makers and private agents largely by surprise.

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Document Object Identifier (DOI): 10.3386/w4495

Published: European Economic Review, Vol. 38, no. 6, pp. 1185, (June 1994).

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