SPECULATIVE ATTACKS AND MACROECONOMIC FUNDAMENTALS - EVIDENCE FROM SOME EUROPEAN CURRENCIES

This paper evaluates the role of macroeconomic fundamentals in generat ing episodes of speculative pressures on six currencies of the Europea n Exchange Rate Mechanism (ERM). The observed regime changes are first estimated by a set of speculative pressure indicators; the contributi on of economic fundamentals are then examined by using the implication s of the basic speculative attack literature. In general, episodes of speculative pressures appear to be associated with a deterioration in economic fundamentals only for some of the sample currencies, confirmi ng the view that consistent macro policies are necessary but not suffi cient to ensure the maintenance of an exchange rate peg. (C) 1997 Else vier Science B.V.