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The Credibility of the European monetary System:A Review

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

Cuadernos de Economía - Spanish Journal of Economics and Finance, 2008, vol. 31, issue 86, 005-034

Abstract: The paper presents an overview of several studies about the credibility of the European Monetary System (EMS). These studies compare different credibility indicators in terms of their ability to detect exchange rate crises in a target zone. Marginal credibility seems to be the best measure for capturing the main events. The credibility indices are also applied to the first years of the current ERM-II. The history of the EMS suggests that, in an environment of financial deregulation and high capital flows, such an exchange rate system can only operate as a temporary regime that is moving towards a full monetary union, since it may be too fragile as a permanent monetary regime.

Keywords: Credibility; Exchange Rates; Target Zones; European Monetary System (search for similar items in EconPapers)
Date: 2008
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