Cover IMF Working Papers
Testing the Credibility of the Belgian Hard Currency Policy
Author: Mr. Vincent Koen
Series:
IMF Working Papers
Volume/Issue:
Volume 1991: Issue 079
Language:
English
Publication Date:
01 Aug 1991
DOI:
https://doi.org/10.5089/9781451850147.001
ISBN:
9781451850147
ISSN:
1018-5941
Pages:
38
Keywords:
WP; interest rate; debt ratio; interest rate differential; band vis-à-vis; Danish krone; deutsche mark rate; inflation differential; short term exchange rate volatility; mechanism of the EMS; vis-à-vis Germany; Exchange rates; Currencies; Financial statistics; Long term interest rates
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Interest rate differentials have been widely used to assess the degree of policy credibility. A problem with this measure, however, is that the relationship between the differential and credibility varies not only across maturities but also with the actual level of the exchange rate. The alternative approach used in this paper, based on the construction of rate-of-return bands, overcomes this difficulty. It is applied to Belgium, which in May 1990 hardened its exchange rate policy stance. Comparisons with other small, open European economies are carried out. Econometric evidence is provided supporting the claim that the announcement and active implementation of a tighter exchange rate link does make a difference.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund