Attitudes Towards Inflation and the Viability of Fixed Exchange Rates: Evidence From the EMS / Susan M. Collins, Francesco Giavazzi.

Format:

Book

Author/Creator:

Collins, Susan M.

Contributor:

National Bureau of Economic Research.

Giavazzi, Francesco.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4057.

NBER working paper series no. w4057

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Attitudes Towards Inflation and the Viability of Fixed Exchange Rates

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Summary:

History provides us with many examples of multiple country fixed exchange rate regimes that have eventually fallen apart. In light of these failures, why has the EMS been so successful in stabilizing exchange rates among members, and in expanding its membership? This paper argues that one key aspect of the explanation lies in a convergence in attitudes toward inflation and unemployment among EMS members since the late 1970s. This paper presents new empirical evidence for this convergence using household survey data for eight European countries during 1974-90. We find evidence that initially high inflation countries -- France and Italy -- have experienced a decrease in tolerance for inflation relative to unemployment. Germany and other low inflation countries, in contrast, appear to have experienced a decrease in tolerance for unemployment. The paper also contains a theoretical section that illustrates why shifts in attitudes of voters within a given country might lead that country to join a fixed exchange rate regime.

Notes:

Print version record

April 1992.