Credibility and Duration in Target Zones: Evidence from the EMS

Simon Sosvilla-Rivero and Francisco Pérez-Bermejo

No 2003-19, Working Papers from FEDEA

Abstract: This paper is devoted to the analysis of the past, present, and future of the European Monetary System (EMS). After examining its background, we review the structure and operation of the EMS, as well as the theoretical framework used to explain exchange-rate movements inside official fluctuation bands. Moreover, we offer some comments and assessment on the EMS in the light of empirical papers examining the EMS from both the credibility and currency crisis approaches, with special emphasis on the survival of the central parities. Finally, drawing on the EMS experience, we make some remarks on new EMS, linking the currencies of non-euro area Member States to the euro, both current European Union Member States and future candidates.

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