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A panel data set for six countries (Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) is used to estimate money demand with panel cointegration methods over the recent disinflation period. The basic money demand model is able to convincingly explain the long-run dynamics of M2 in the selected countries. However, money demand is found to have been significantly determined by the euro area interest rates and the exchange rate against the euro, which indicates possible instability of money demand functions in the Central and Eastern European countries. Therefore, direct inflation targeting is an appropriate monetary regime before the eventual adoption of the euro. [ABSTRACT FROM AUTHOR]

In this paper the debate on purchasing power parity (PPP) is considered by providing results with disaggregated price data from European countries. The disaggregation of the price data is important because it allows for the consideration of goods that are likely tradable (e.g., fruits) with goods that are not tradable (e.g., hotel rooms). The European focus is important because these results are able to shed light on the effect of the type of exchange rate regime, member of exchange rate mechanism (ERM) or not. [ABSTRACT FROM AUTHOR]

This article examines the regime changes in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS), applying the duration model approach to weekly data of eight currencies participating in the ERM, covering the complete EMS history. When using the non-parametric (univariate) analysis, it was found that for those regimens with long durations, the ERM would have been relatively stable, while for the (more common) regimes associated with short durations would have been more unstable. The probability of maintaining a certain regime is estimated to be 0.685. When applying a parametric (multivariate) analysis to investigate the role of other variables in the probability of a regime change, it is concluded that the interest rate differential with Germany and the magnitude of the realignment would have negatively affected the duration of a given regime, while credibility would have positively influenced such duration. Finally, when distinguishing between groups of currencies, it is observed that those in the core are more stable than those in the periphery, obtaining evidence against equality of survival functions among these groups of currencies. [ABSTRACT FROM AUTHOR]

This paper investigates pricing to market behaviour using data for European auto exports. The empirical analysis uses forward instead of spot exchange rates. Cross-country and cross-product analyses reveal that pricing behaviour depends mainly on the class of product, while the country of origin and destination appears as less important. Furthermore, the data do not usually reject the hypothesis of a symmetric response of export prices to depreciations and appreciations of the exporter's currency. Finally, although the point estimates confirm the combined influence of the business cycle and the direction of the exchange rate movements on pricing to market in most cases, formal tests seldom provide statistical significance for this result. [ABSTRACT FROM AUTHOR]

This paper argues that the effectiveness of the exchange rate mechanism (ERM) of the European Monetary System (EMS) should be gauged by its impact on the monetary component of real exchange rate variability. Nominal and real shocks are separated using a bivariate structural VAR applied to real exchange rate data of the six original member countries participating in the ERM and a control group consisting of Britain and the United States. The findings suggest that monetary shocks have been an important source of real exchange rate variability and that the ERM has been successful in reducing the incidence of monetary shocks across its member countries prior to the EMS currency crises of 1992-93, while being less successful thereafter. [ABSTRACT FROM AUTHOR]

This paper proposes a method to estimate separately the size of the expected depreciation in an eventual devaluation of the central parity in the ERM, and the probability assigned by agents to this devaluation occurring in the short run. The proposed method complements the information provided by the jumps observed in market exchange rates around realignments with the information contained in interest rate differentials on the future behaviour of exchange rates. The separation of probability and size allows a richer analysis of the effects of devaluations on exchange rate credibility in the ERM. [ABSTRACT FROM AUTHOR]

In past research on the long-run behaviour of exchange rates the possibility of cointegration among spot rates has been rejected. This rejection is surprising as some exchange rates are bound by official agreements to comove over time. The European Monetary System (EMS) is an example of such an officially coordinating system. In this paper we extend past research by focusing on only EMS rates and use potentially more powerful cointegration tests to show that EMS rates are cointegrated. [ABSTRACT FROM AUTHOR]

This paper aims at investigating the behavior of risk premia of currencies participating in the European Monetary System (EMS) against the dollar. For this purpose a multivariate GARCH-in-mean model is specified, allowing the risk premia of EMS currencies other than the deutschmark to be determined as a function of their conditional covariance with the deutschmark/dollar exchange rate. The risk premium of the latter is determined by its own conditional variance. The model is able to capture the time-varying character of the relationship between EMS currencies and the deutschmark. Furthermore, the model allows us to examine how changes in the conditional variances and covariances of future exchange rates affect the level of current exchange rates. [ABSTRACT FROM AUTHOR]

In this paper we examine the relationship between consumers' opinions as proxied by a survey-based confidence index and measurable economic variables in four major EC countries. We are particularly interested in the impact of foreign factors, such as the price of oil and the exchange rate. Several studies have attempted to assess the usefulness of the information contained in consumer surveys. Studies by Hymans (1970), Fair (1971), Shapiro (1972), McNeil (1974)for the US and by Vanden Abeele (1983) for the main EC countries have concluded that indexes of consumer sentiment do not contain much useful information since they can be explained by a small number of economic variables. [ABSTRACT FROM AUTHOR]