Regimen changes and duration in the European Monetary System

Simon Sosvilla-Rivero and Reyes Maroto Illera
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Reyes Maroto Illera: FEDEA

No 02-05, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: This paper examines the regime changes in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS), applying the duration model approach to weekly data of eight currencies participating in the ERM, covering the complete EMS history. When using the non-parametric (univariate) analysis, we found that for those regimens with long durations, the ERM would have been relatively stable, while for the (more common) regimes associated with short durations would have been more unstable. The probability of maintaining a certain regime is estimated to be 0.685. When applying a parametric (multivariate) analysis to investigate the role of other variables in the probability of a regime change, we conclude that the interest rate differential with Germany and the magnitude of the realignment would have negatively affected the duration of a given regime, while credibility would have positively influenced such duration. Finally, when distinguishing between groups of currencies, we observe that those in the core are more stable than those in the periphery, obtaining evidence against equality of survival functions among these groups of currencies.

Keywords: Duration models; exchange rates; European Monetary System (search for similar items in EconPapers)
JEL-codes: C41 F31 F33 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2002-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Regimen changes and duration in the European Monetary System (2003)
Working Paper: Regimen Changes and Duration in the European Monetary System
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Persistent link: https://EconPapers.repec.org/RePEc:aee:wpaper:0205

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