Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144455
Authors: 
De Grauwe, Paul
Ji, Yuemei
Year of Publication: 
2013
Series/Report no.: 
Working Paper Research 243
Abstract: 
We analyze the similarities and the differences in the fragility of the European Monetary System (EMS) and the Eurozone. We test the hypothesis that in the EMS the fragility arose from the absence of a credible lender of last resort in the foreign exchange markets while in the Eurozone it was the absence of a lender of last resort in the long-term government bond markets that caused the fragility. We conclude that in the EMS the national central banks were weak and fragile, and the national governments were insulated from this weakness by the fact that they kept their own national currencies. In the Eurozone the roles were reversed. The national central banks that became part of the Eurosystem were strengthened.
Subjects: 
government bond markets
interbank money market
interest rate spread
Eurozone
EMS
fragility
JEL: 
E42
E52
E58
F33
Document Type: 
Working Paper

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