The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page A Long-run View of the European Monetary System
Hali J. Edison and Eric Fisher
1989-339  (January 1989)

Abstract:  This paper analyzes the exchange rates and consumer price indices of the six largest countries of the European Monetary System (EMS). The analysis covers the entire period of floating exchange rates. This paper shows that many of the implied real exchange rates have unit roots, even when one allows for the possibility of a structural break occurring at the time of the formation of the EMS. Further, prices and exchange rates are not co-integrated during the EMS period. There is strong evidence that there is a quadratic time trend in these price indices and weak evidence that Exchange rates and prices were more highly co-integrated before the advent of the EMS. The data suggest that the eleven realignments of the EMS between 1979 and 1988 have not served fully to offset the member countries' inflation differentials.

Full paper(472 KB PDF)

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 1989 IFDPs
Accessibility | Contact Us
Last update: November 10, 2008