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This paper explores the determinants of expected rates of realignment of the French franc/Deutsche mark exchange rate during the period 1987-1991. It does so by first estimating expected parity changes and then relating these to economic variables that are believed to influence agents’ realignment expectations. Time-varying expected rates of realignment are estimated in two ways: one, by adjusting short-term euromarket interest rate differentials for the expected rate of change of the FF/DM exchange rate within the EMS fluctuation band and two, by the differential in the yield on long-term government bonds. The behavior of the exchange rate within the band is found to be consistent with mean reversion and the expected change is nontrivial. Thus, by filtering out the expected mean reversion within the band from short-term interest rate differentials more precise measures of expected changes in the central parity are obtained. Realignment expectations are found to be closely related to the evolution of fundamental economic variables and, for shorter horizons, the position of the franc in the fluctuation band.

Crawling peg --- Currencies --- Currency --- Exchange rate adjustments --- Exchange rates --- Foreign Exchange --- Foreign exchange --- Government and the Monetary System --- Income economics --- Interest Rates: Determination, Term Structure, and Effects --- International Monetary Arrangements and Institutions --- Labor --- Labour --- Monetary economics --- Monetary Systems --- Money and Monetary Policy --- Money --- Payment Systems --- Regimes --- Standards --- Unemployment rate --- Unemployment --- Unemployment: Models, Duration, Incidence, and Job Search --- Germany

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper investigates empirically the relevance of external, domestic, and financial weaknesses as well as trade and financial linkages in inducing financial crises for a sample of 61 emerging market and industrial countries. A panel probit estimation finds these economic indicators to be significant for emerging market countries during the Mexican, Asian, and Russian crises. In particular, the indicators of vulnerability to international financial spillover (common creditor) and of financial fragility (reserve adequacy) are highly significant and appear to explain the apparent regional concentration of these crises. Exchange rate regimes and capital controls, however, do not seem to matter.

Finance: General --- Financial Risk Management --- Foreign Exchange --- Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- International Lending and Debt Problems --- Open Economy Macroeconomics --- International Financial Markets --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Finance --- Economic & financial crises & disasters --- Currency --- Foreign exchange --- Emerging and frontier financial markets --- Financial crises --- Exchange rate arrangements --- Currency crises --- Currency markets --- Financial markets --- Financial services industry --- Foreign exchange market --- Brazil