EXCHANGE-RATE BEHAVIOR UNDER THE EMS REGIME - WAS THERE ANY SYSTEMATIC CHANGE

Most empirical studies fail to detect any systematic effects of the EM S regime on the economic performance of member countries. This reveals the difficulty of constructing controlled experiments which can disti nguish what is due to the EMS, from that due to common external pressu res. We argue that the crucial step is to examine the exchange rates' distribution, since no performance improvements will appear if exchang e rate behaviour does not change within the EMS. We find that there ar e changes in the third and fourth moments which imply that EMS currenc ies have become more fragile and susceptible to shocks (particularly n egative shocks) relative to non-EMS currencies. (C) 1997 Elsevier Scie nce Ltd.