Essays in managed exchange rates.

The main objective of this dissertation is to study aspects of the current regime of managed exchange rates. The first chapter provides an empirical analysis of the main sources of fluctuactions in the nominal and real exchange rates of the most industrialized countries. A structural VAR approach with long-run constraints is applied by assuming that nominal shocks do not have any long-run impact on economic variables, whereas real shocks can affect both short- and long-run components. It is found that real (technology-driven) shocks play an important role in explaining the fluctuations of both real and nominal exchange rates in the post-Bretton Woods period. The other two chapters focus attention on the recent history of the European Monetary System. In particular, Chapter 2 proposes a theoretical model of regime-switching from fixed to floating rates. The exit from the fixed exchange-rate regime is not due to speculative attacks, but is designed as an optimizing decision of the policymakers and is modeled as an optimal stopping-point problem with brownian-motion shocks. The model is then applied to the crisis of the European Monetary System in 1992-93 and to the future transition to the European Monetary Union. Finally, in Chapter 3 an empirical VAR analysis is applied to three European economies (France, Italy and the Netherlands) that have been members of the European Monetary System since 1979, but behaved differently with respect to the fixed exchange-rate constraint. The aim of the analysis is to test whether the different performances of the three countries were due to divergent monetary policies with respect to the center country (Germany). The results do not reject this hypothesis, but also show that the monetary policies in the most divergent countries (France and Italy) were justified by their higher macroeconomic cost in following Germany.PhDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/105084/1/9635504.pdfDescription of 9635504.pdf : Restricted to UM users only