A NEW INDICATOR TO ASSESS THE CREDIBILITY OF THE EMS

This paper proposes a new credibility indicator for the EMS based on t he realignment expectations calculated using the inferred probabilitie s derived from the estimation of a Markov-switching regimes model. Thi s indicator avoids most of the problems presented by the so-called 'dr ift adjusted method' and, in particular, it accounts, in a natural man ner, for 'ex-ante' expectations instead of using 'ex-post' realignment times in order to deal with the jumps in the exchange rates. The peri ods of high probability of realignment match very closely the crisis o f the EMS.