Monetary and financial integration in the EMU: Push or pull?
A number of studies have recently noted that monetary integration in the European Monetary Union (EMU) has been accompanied by increased financial integration. This paper examines the channels through which monetary union increased financial integration, using international panel data on bilateral international commercial bank claims from 1998-2006. I decompose the relative increase in bilateral commercial bank claims among union members following monetary integration into three possible channels: A "borrower effect," as a country's EMU membership may leave its borrowers more creditworthy ...
European monetary arrangements: implications for the dollar, exchange rate variability and credibility
This paper uses the recent history of the ERM to gain insights into what might happen to exchange rates on the road to EMU. To do this, the paper examines the variability of exchange rates, the transmission of monetary policy between countries, the role of the dollar in ERM exchange rate crises, and ERM members' credibility as measured by the realignment probabilities prior to the September 1992 crisis. We find that behavior of exchange rates has changed over time and differs between ERM and non-ERM currencies. We identify two factors that might have contributed to the September 1992 crisis: ...
The European system of central banks
On January 1, 1999, the European System of Central Banks (ESCB) began conducting monetary policy for eleven of the fifteen nations of the European Union, formally creating an economic and monetary union. The ESCB is governed by the decision-making bodies of the European Central Bank (ECB) and manages Europe's new currency, the euro. The structure of the ESCB is in many ways similar to that of the Federal Reserve System, with the ECB playing a role similar to that of the Board of Governors and the various national central banks occupying positions not unlike those of the regional Reserve ...
Expected and predicted realignments: the FF/DM exchange rate during the EMS
An empirical model of time-varying realignment risk in an exchange rate target zone is developed. Expected rates of devaluation are estimated as the difference between interest rate differentials and estimated expected rates of depreciation within the exchange rate band, using French Franc/Deutsche Mark data during the European Monetary System. The behavior of estimated expected rates of depreciation accord well with the theoretical model of Bertola-Svensson (1990). We are also able to predict actual realignments with some success.
The demand for divisia money in a core monetary union
Proponents of an aggregation theoretic approach to money demand argue that simple-sum measures do not capture the theoretical notion of money, especially for broad monetary aggregates. European monetary aggregation, which uses indices for monetary services, seems attractive because these indices can account for the imperfect substitutability between different currencies. In this article, Katrin Wesche applies the aggregation theoretic framework to money holdings of European residents and compares the resulting index to simple-sum M3. She concludes that the Divisia index of European monetary ...
Technical trading rules in the European Monetary System
Using the genetic programming methodology developed in Neely, Weller and Dittmar (1997), we find trading rules that generate significant excess returns for three of four EMS exchange rates over the out-of-sample period 1986-1996. Permitting the rules to use information about the interest rate differential proved to be important. The reduction in volatility resulting from the imposition of a narrower band may reduce trading rule profitability. The currency for which there was least evidence of significant excess returns was the Dutch guilder, which was also the only currency that remained ...
France will be ready for EMU, says French ambassador