Risk reduction in the EMS? Evidence from trends in exchange rate properties

The performance of the European Monetary System is still being debated. On the subject of exchange rate characteristics it has been claimed that evide nce from looking at the statistical properties of the exchange rate distrib ution indicates an increased risk for agents. Others argue that the apparen t success of the EMS is illusory, as it has not performed better than other currencies over the same period. We analyse these propositions by searchin g for trends in risk of EMS exchange rates and comparing them to outside be nchmarks. We find properties indicating decreasing risk and these results a lso hold when structural breaks are considered. Moreover, this decline seem s to be faster than for world benchmarks.