Foreign Exchange Market Efficiency: Did The Ems Make a Difference? A Cointegration-Based Empirical Investigation

Marco Tronzano ()
Additional contact information
Marco Tronzano: Università degli Studi di Genova, Dipartimento di Economia e Metodi Quantitativi, Postal: Darsena - Via Vivaldi 5 - 16126 Genova - Italy ,, http://www.unige.it/

Economia Internazionale / International Economics, 2002, vol. 55, issue 1, 69-103

Abstract: This paper addresses an interesting theoretical intuition, originally put forward in De Grauwe (1989), according to which market efficiency should find stronger support in a pegged exchange rate regime rather than in a purely floating context. A cointegration-based empirical investigation on the French Franc/Deutsche Mark exchange rate and two outstanding floating rates (DM1 U$, Yen/U$) strongly supports the above intuition. As revealed by cointegration tests, a necessary condition for market efficiency is uniformly supported across alternative exchange rate regimes. Forward unbiasedness tests, however, point out that only inside the EMS is a sufficient condition for foreign exchange market efficiency satisfied. The above conclusion is robust to alternative methodologies to test restrictions on parameters and has relevant implications on a large strand of applied literature assessing EMS credibility.

Keywords: Market Efficiency; Forward Rate Unbiasedness; Cointegration; EMS (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 2002
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:ecoint:0199

Access Statistics for this article

Economia Internazionale / International Economics is currently edited by Giovanni Battista Pittaluga

More articles in Economia Internazionale / International Economics from Camera di Commercio Industria Artigianato Agricoltura di Genova Via Garibaldi 4, 16124 Genova, Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Angela Procopio ().