Abstract
The objective of this chapter is to model the behaviour of bilateral exchange rates for the Belgium franc, French franc, Italian lira and Dutch guilder against the Deutschmark (DM) during the period April 1979–December 1990. The issue is complex since various realignments have taken place within the European Monetary System (EMS). An attempt is made to derive a long-run relationship between the exchange rate and fundamentals, such as interest rates and price differentials, and the impact of the DM/dollar exchange rate using the linearized version of target zone models. The study also proposes to derive short-run relationships on the assumption that different exchange rate regimes are exogenously given. We give details about changes in exchange rate parity rates for currencies against the DM in Table A.9.1.KeywordsExchange RateInterest RateUnit RootExchange Rate RegimeRandom Walk ModelThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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