The Stabilizing Effect of the ERMon Exchange Rates and Interest Rates: An Empirical Investigation

Michael Artis and Mark Taylor

No 1993/067, IMF Working Papers from International Monetary Fund

Abstract: This paper applies nonparametric test procedures to test for a shift in the volatility of nominal and real exchange rates for ERM members and nonmembers. The results imply a reduction in volatility for the ERM members, especially during the second half of the period of operation of the ERM. We also demonstrate that this enhanced stability was not bought at the expense of increased interest rate volatility. The issue of interest rate volatility during sterling’s participation in the ERM is also examined.

Keywords: WP; trade flow; U.S. dollar; ERM membership; ERM currency; interest rate volatility; exchange rate volatility; U.K. sterling; ERM country; ERM effect; Exchange rates; Real exchange rates; Currencies; Nominal effective exchange rate; Real effective exchange rates; Global (search for similar items in EconPapers)
Pages: 30
Date: 1993-08-01
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Citations: View citations in EconPapers (9)

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