A PITFALL IN COMPUTING EXCHANGE-RATE DENSITY IN THE EMS BAND

It is not enough to look at the distance of a currency from its interv ention limits against the DM to determine whether or not it is close t o the edge of the EMS band. In practice, currencies often come up agai nst a limit with another currency before reaching a limit against the DM. We show that, taking account of multilateral obligations, most cur rencies did not spend a disproportionate amount of time near the middl e of the available fluctuation band - especially before 1987. (C) 1998 Elsevier Science Ltd. All rights reserved. JEL classifications: F31, F33.