NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Markets' Assessment of EMU

David S. Bates

NBER Working Paper No. 6874
Issued in January 1999
NBER Program(s):   IFM

This article reviews the assumptions and methodologies underlying EMU probability calculators,' which infer from financial data the probability of specific countries joining the European Monetary Union. Some historical evidence is presented in support of the expectations hypothesis for intra-European interest rate differentials underlying most calculators, while various potential biases are deemed negligible. The various EMU calculators differ primarily in their scenarios for intra-European interest rate differentials conditional upon EMU not occurring. This article also discusses what can be inferred from financial data regarding future policies of the European Central Bank.

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Published: Carnegie-Rochester Conference Series on Public Policy, Vol. 51, no. 1(1999): 229-269.

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