The Credibility of the United Kingdom's Commitment to the Erm: Intentions Versus Actions

Paul Masson

No 1994/147, IMF Working Papers from International Monetary Fund

Abstract: The paper presents estimates of a model of the credibility of the U.K. commitment to its central parity against the deutsche mark during the period of U.K. ERM membership (1990-92). The measure of credibility used is the long-term interest differential with Germany. Credibility is decomposed into two aspects: an assessment of whether the government was truly committed to the ERM, and the probability that even a committed government would be able to continue to bear the unemployment costs. Doubts about the first aspect—which could lead to a self-fulfilling crisis—are shown to have declined steadily during the period of ERM membership, while the second aspect is estimated to have become increasingly important, due to rising unemployment.

Keywords: WP; exchange rate; EMS; monetary policy; exchange rates; U.K. government; government policy; optimising government; statements to the contrary; government's reputation; Unemployment; Inflation; Employment (search for similar items in EconPapers)
Pages: 32
Date: 1994-12-01
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: THE CREDIBILITY OF THE UNITED KINGDOM'S COMMITMENT TO THE ERM: INTENTIONS VERSUS ACTIONS (1994)
Working Paper: The Credibility of the United Kingdom's Commitment to the ERM: Intentions versus Actions (1994)
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