The credibility of the exchange rate regime: An analisys through derivatives of the September 1992 Crisis

Fabio Barbato and Giuseppe Garofalo

No 16, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: This paper argues that, in the September 1992 European currency crisis, market trends in derivatives, in terms of price volatility and change in volumes traded, might have represented an early indicator, in reference to the spot market, of the lack of confidence in the ability of the Italian Lira and the Sterling Pound to maintain their parities within the ERM. The assessment is made by comparing the daily data on Italian/English interbank rates with the implicit yield on short-term interest rate futures and with a maximum compatible with the ERM band created by means of German interbank rates and changes in the exchange rates

JEL-codes: F31 G14 (search for similar items in EconPapers)
Pages: 35
Date: 1996-09
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