The Stabilizing Effect of the ERMon Exchange Rates and Interest Rates: An Empirical Investigation
August 1, 1993
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Summary
This paper applies nonparametric test procedures to test for a shift in the volatility of nominal and real exchange rates for ERM members and nonmembers. The results imply a reduction in volatility for the ERM members, especially during the second half of the period of operation of the ERM. We also demonstrate that this enhanced stability was not bought at the expense of increased interest rate volatility. The issue of interest rate volatility during sterling’s participation in the ERM is also examined.
Subject: Currencies, Exchange rates, Foreign exchange, Money, Nominal effective exchange rate, Real effective exchange rates, Real exchange rates
Keywords: Currencies, ERM country, ERM currency, ERM effect, ERM membership, exchange rate volatility, Exchange rates, Global, interest rate volatility, Nominal effective exchange rate, Real effective exchange rates, Real exchange rates, trade flow, U.K. sterling, U.S. dollar, WP
Pages:
30
Volume:
1993
DOI:
Issue:
067
Series:
Working Paper No. 1993/067
Stock No:
WPIEA0671993
ISBN:
9781451848854
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 41, No. 1, March 1994.
