Intertemporal Balance, Sustainability and Efficiency of the Exchange Rate Mechanism

Ho-Don Yan ()

Journal of Economic Integration, 1998, vol. 13, 292-310

Abstract:

Under the assumption that the balance of payments must satisfy the expected intertemporal balance, this paper seeks to establish a pre-condition for a crisis of the Exchange Rate Mechanism (ERM). Proposing that non-stationarity of the growth rate of assets is evidence of a violation of expected intertemporal bal - ance, we calculate Augmented Dickey-Fuller statistics of the growth rate of for - eign exchange reserves prior to the ERM crisis in September, 1992 for member states. In all, but one, of the crisis experiences, there is no evidence of a violation of intertemporal balance prior to the month of the crisis. However, the persistent violation of intertemporal balance by Italy prior to the crisis reflects that the fun - damental disequilibrium matters to the viability of the ERM. With no evidence of ef ficient allocation of the foreign reserves within the member states, the ERM is exposed to attack by speculators.

Keywords: Intertemporal; Balance (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 1998
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0076

Access Statistics for this article

Journal of Economic Integration is currently edited by Seongeun Kim

More articles in Journal of Economic Integration from Center for Economic Integration, Sejong University Contact information at EDIRC.
Bibliographic data for series maintained by Yunhoe Kim ().