Title: Between Realignments and Intervention: the Belgian Franc in the European Monetary System
Abstract: We analyse the functioning of the Belgian franc in' the European Monetary System between 1979 and 1991. A discrete time target zone model which captures the features displayed by the ,continuous time models is combined with intervention data provided by the Belgian central bank.' Simple prediction formulas are derived to calculate one-weekahead conditional probabilities on a realignment of the Belgian franc relative to the Deutsche mark. The devaluation probabilities are matched with the intervention data. We find support for the notion that Belgian intervention policy was a policy of leaning against the wind. Mailing Address °Tinbergen Instituut Oostmaaslaan 950 3063 DM Rotterdam The Netherlands Tel.: (31)-10-4088945 Fax: (31)-10-4527347 • The second author was supponed by grant 450-229-006 of the Dutch Research Founda. tion (NWO) while the third author benefited from grant IUAP26 of the Belgian government. We are grateful to the Belgian central bank for providing us with weekly intervention data. We benefited from comments and suggestions on an earlier version of this paper by Roel Beetsma, Mark de Broeck, Paul de Grauwe, Frank de Jong, Neil Shephard and Peter Vim.
Publication Year: 1994
Publication Date: 1994-01-01
Language: en
Type: preprint
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Cited By Count: 34
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