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Economic Commentary

Lessons from the European Monetary System

Many economists and policy makers have argued that the industrialized countries could minimize exchange-rate volatility and enhance economic stability if West Germany, Japan, and the United States linked their currencies in a target zone arrangement.

Under a target-zone system, countries adjust their national economic policies to maintain their exchange rates within a specific margin around agreed-upon, fixed central exchange rates. Such a system already exists for the major European currencies in the form of the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). A review of the ERM provides valuable lessons about the operations, costs, and benefits of target-zone arrangements.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This paper and its data are subject to revision; please visit for updates.

Suggested Citation

Karamouzis, Nicholas V. 1987. “Lessons from the European Monetary System.” Federal Reserve Bank of Cleveland, Economic Commentary 8/15/1987.

This work by Federal Reserve Bank of Cleveland is licensed under Creative Commons Attribution-NonCommercial 4.0 International