Discussion Paper Details

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Title: The `Walters' Critique of the EMS: A Case of Inconsistent Expectations

Author(s): Marcus Miller and Alan Sutherland

Publication Date: November 1990

Keyword(s): Credibility, Disinflation, European Monetary System and Stability

Programme Area(s): International Macroeconomics

Abstract: Alan Walters has suggested that the European Monetary System will prove dynamically unstable when capital controls are removed. The argument is analysed within a model that includes overlapping contracts. It is found that the short-run effects predicted by Walters only arise when the credibility of the peg differs as between the labour and financial markets: but even if such a difference exists the system is stable in the long run.

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Bibliographic Reference

Miller, M and Sutherland, A. 1990. 'The `Walters' Critique of the EMS: A Case of Inconsistent Expectations'. London, Centre for Economic Policy Research.