Aggregate and disaggregate measures of the foreign exchange risk premium

Edison, H. and Macdonald, R. (2002) Aggregate and disaggregate measures of the foreign exchange risk premium. International Review of Economics and Finance, 11(1), pp. 57-84. (doi: 10.1016/S1059-0560(01)00096-X)

Abstract

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
• Status: Published
• Refereed: Yes
• 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: International Review of Economics and Finance
• ISSN: 1059-0560