A Regional Exchange Rate System for East Asia? Lessons of the European Monetary System
A Regional Exchange Rate System for East Asia? Lessons of the European Monetary System
This chapter examines the causes of the 1992 to 1993 European Monetary System (EMS) crisis to determine the factors that contributed to the functioning and eventual collapse of the EMS. The chapter is organized as follows. Section 10.1 dissects the problem of credibility inherent in currency pegs. Section 10.2 reviews the literature on the causes of the EMS crisis and assesses the credibility of the EMS using Svensson’s (1991) model of target zone credibility. Section 10.3 highlights features that enhance the credibility of an EMS-style monetary system to avoid financial crises and investigates whether East Asian countries can meet the requirements to create a stable East Asian Monetary System.
Keywords: EMS crisis, currency pegs, exchange rates, monetary policy, monetary system, East Asian countries, monetary integration
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