A LONG-RUN VIEW OF THE EUROPEAN MONETARY-SYSTEM

This papaer analyzes the exchange rates and consumer price indices of six countries participating in the European Monetary System (EMS) during the entire period of floating exchange rates. The analysis shows that most of these real exchange rates have unit roots, even when one allows for the possibility of a structural break at the time of the advent of the EMS. Further, proces and exchange rates are not co-integrated during the EMS period. The data suggest that the 12 realignments of the EMS have not served fully too offset the member countries' inflation differentials. © 1991.