Credibility and interest rate discretion in the ERM

Edison, H. and Macdonald, R. (2003) Credibility and interest rate discretion in the ERM. Open Economies Review, 14(4), pp. 351-368. (doi: 10.1023/A:1025388009519)

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Recent proposals for reforming the international monetary system often focus on a target zone arrangement for the dollar, euro and yen. Theoretical research suggests that a credible target zone confers on a participant some short-run discretion in the setting of interest rates, and recent empirical research suggests that this was indeed the case for the Classical gold standard, perhaps the best example of a credible target zone. In this paper we examine the extent of short-run interest rate discretion (SRID) conferred by another experiment with target zones, namely the ERM experience. Amongst our findings is the result that countries that had a credible commitment to the ERM did indeed have SRID.

Item Type:Articles
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald
Authors: Edison, H., and Macdonald, R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Open Economies Review
ISSN (Online):1573-708X

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