Discussion paper

DP480 The `Walters' Critique of the EMS: A Case of Inconsistent Expectations

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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Citation

Miller, M and A Sutherland (1990), ‘DP480 The `Walters' Critique of the EMS: A Case of Inconsistent Expectations‘, CEPR Discussion Paper No. 480. CEPR Press, Paris & London. https://cepr.org/publications/dp480