DP444 Exchange Rates, Policy Convergence and the European Monetary System

Author(s): Ronald MacDonald, Mark Taylor
Publication Date: August 1990
Keyword(s): European Monetary System, Exchange Rates, Policy Convergence
JEL(s): 211, 431, 432
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=444

In this paper we use a recently developed multivariate cointegration technique to analyse the degree of policy convergence of EMS member relative to that of some non-EMS countries. Interestingly, we find convergence for the nominal and real exchange rates and money supplies of the EMS members but not for the non-EMS countries. We also provide some evidence to support the `German leadership hypothesis' in the context of intra-EMS monetary policy convergence, which accords with anecdotal evidence on the modus operandi of the EMS.