Financial Markets and European Monetary Cooperation The Lessons of the 1992–93 Exchange Rate Mechanism Crisis

This book provides a comprehensive assessment of the causes and implications of the 1992???93 crisis of the exchange rate mechanism.

A blend of theoretical and policy-oriented analysis, this book provides a comprehensive assessment of the causes and implications of the 1992–3 crisis of the exchange rate mechanism of the European monetary system. Cogent factual presentation - including new details on the crisis - original theoretical analysis, and an interpretation rooted in the theory, make this treatment essential reading to understand the process toward economic and political integration in Europe. The authors first sketch the history of monetary cooperation in Europe from Bretton Woods to Maastricht. A step-by-step account of the 1992–3 events follows, including a discussion of the extent to which financial markets anticipated the crisis. A survey of the literature on the subject introduces the authors' center-periphery model of currency crisis. The authors argue that the vulnerability of Europe to financial crisis was - and still is - the result of the lack of concern with the systemic dimensions of monetary policy-making.

1. Introduction; 2. Exchange rate stability in Europe: a historical perspective; 3. The unfolding of the 1992–3 ERM crisis; 4. Financial markets and ERM credibility; 5. Modelling currency crisis; 6. A center-periphery model; 7. Unilateral pegs and escape clauses: the role of domestic credibility; 8. Policy coordination and currency crisis; 9. What causes the system to crumble; 10. Rebuilding the system: what next?

This 1998 book provides a comprehensive assessment of the causes and implications of the 1992-3 exchange rate mechanism crisis. Superb factual presentation, original theoretical analysis, and an interpretation rooted in theory, makes this monograph essential reading to understand the process toward economic and political integration in Europe.