An empirical examination of exchange-rate credibility determinants in the EMS

Francisco Ledesma (), Pérez-Rodríguez, Jorge and Simon Sosvilla-Rivero ()

Applied Economics Letters, 2006, vol. 13, issue 13, pages 847-850

Abstract: This study provides empirical evidence on the determinants of exchange rate credibility under the European Monetary System (EMS). To that end, it considers both economic variables and political factors using data of eight currencies participating in the Exchange Rate Mechanism, covering the complete EMS history (1979 to 1998). The results suggest that the level of international reserves, the real interest rate and right-wing governments would have positively affected the credibility of a given central parity, while the unemployment rate and the inflation rate would have negatively influenced such credibility.

Date: 2006
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