Exchange rate target zones and the European monetary system

Elias D Belessakos, University of Pennsylvania


This Doctoral Dissertation is about alternative exchange rate regimes and the trade-offs associated with them. The approach is initially theoretical and then empirical. One of the most basic lessons from economics emerges again out of this work: economies are faced with scarcity that leads them to make choices which in turn imply sacrifices. Our theoretical models point to the fact that open economies that choose to stabilize their exchange rates through explicit bands on the fundamentals must sacrifice the stability of some other economic variable. Thus the second chapter shows that volatility might be transferred to the nominal rate of interest. In the third chapter, using a model that allows for real effects we show that volatility might be transferred to output. In fact the data for French and Italian Euro-interest rates verify that in the period of the European Monetary system, during which exchange rate stability has been achieved, the variability of interest rates is higher than it was during the free floating exchange rate period of 1973-1979. This empirical investigation constitutes the final chapter in this thesis.

Subject Area


Recommended Citation

Belessakos, Elias D, "Exchange rate target zones and the European monetary system" (1990). Dissertations available from ProQuest. AAI9112533.