Exchange Rate Regimes and Trade Prices: Does the EMS Matter?

No 810, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper investigates the role of the exchange rate regime in the process of trade adjustment, by examining the relationship between trade prices and exchange rate regimes. The theoretical framework is a dynamic one à la Froot-Klemperer (1989). The empirical investigation takes advantage of the simultaneous occurrence, since 1979, of relatively stable exchange rates inside the ERM and instable rates outside to engage in a controlled experiment on the impact of the exchange rate regime on trade prices. The results suggest that a system of pegged rates like the EMS, although helpful, is not necessary to achieve a smooth process of trade adjustment. It appears that the absence of misalignment rather than the type of exchange rate regime is the crucial factor for fulfilling such an objective.

Keywords: EMS; Exchange Rate Regimes; Trade (search for similar items in EconPapers)
JEL-codes: F12 F31 L16 (search for similar items in EconPapers)
Date: Written 1993-08

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Journal Article: Exchange rate regimes and trade prices Does the EMS matter? (1995)
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