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Assessing Target Zone Credibility Mean Reversion and Devaluation Expectations in the EMS

The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutsche mark, for the period March 1979-May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by the adjusting interest rat...

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Bibliographic Details
Main Author: Svensson, Lars
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1991
Series:IMF Working Papers
Subjects:
Payment Systems
Public Expenditure Review
International Monetary Arrangements And Institutions
Public Finance & Taxation
Currency; Foreign Exchange
Regimes
Intangible Capital
National Accounts
Money
National Government Expenditures And Related Policies: General
Foreign Exchange
Depreciation
Standards
Financial Risk Management
Capital And Ownership Structure
Goodwill
Currencies
Macroeconomics
Crawling Peg
Capacity
Financial Risk And Risk Management
Financing Policy
Capital
Exchange Rate Risk
Government And The Monetary System
Investment
Monetary Economics
Value Of Firms
Saving And Investment
Banks And Banking
Investments: General
Monetary Systems
Expenditures, Public
Financial Regulation And Supervision
Exchange Rates
Public Finance
Money And Monetary Policy
Financial Services Law & Regulation
Luxembourg
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutsche mark, for the period March 1979-May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by the adjusting interest rate differentials by subtracting estimated expected rates of depreciation within the exchange rate band. The adjustment is nontrivial because exchange rates within the ERM bands display mean reversion rather than random walk (unit root) behavior. The adjustment is essential since the expected rates of depreciation are usually of about the same magnitude as the interest rate differentials
Physical Description:35 pages
ISBN:9781451949964

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