The credibility of the European monetary systema review
- Ledesma Rodríguez, Francisco J.
- Navarro Ibáñez, Manuel
- Pérez Rodríguez, Jorge V.
- Sosvilla Rivero, Simón
ISSN: 2340-6704, 0210-0266
Year of publication: 2008
Volume: 31
Issue: 86
Pages: 5-34
Type: Article
More publications in: Cuadernos de economía: Spanish Journal of Economics and Finance
Sustainable development goals
Abstract
The paper presents an overview of several studies about the credibility of the European Monetary System (EMS). These studies compare different credibility indicators in terms of their ability to detect exchange rate crises in a target zone. Marginal credibility seems to be the best measure for capturing the main events. The credibility indices are also applied to the first years of the current ERM-II. The history of the EMS suggests that, in an environment of financial deregulation and high capital flows, such an exchange rate system can only operate as a temporary regime that is moving towards a full monetary union, since it may be too fragile as a permanent monetary regime.