Monetary and Exchange Rate Stability at the EU Mediterranean Borders
33 Pages Posted: 24 Jul 2007
Date Written: December 2004
Stabilizing the exchange rate is a major monetary policy goal in a number of Mediterranean countries. We present a microstructure model of the foreign exchange market based on technical trading that allows us to categorize de facto exchange rate regimes and to derive a market based measure of the credibility of these exchange rate regimes. In our empirical analysis we compare the exchange rate policies of seven non European Mediterranean countries, Algeria, Egypt, Israel, Libya, Morocco, Turkey and Tunisia, with the benchmark of four European non EU countries namely Albania, Bulgaria, Croatia, and Romania. Our results indicate that the fundamental volatility of the market based exchange rates is quite moderate and that markets assign a moderate degree of credibility to the exchange rate management of most of the countries.
Keywords: monetary policy, exchange rate policy, credibility, Mediterranean, Eastern Europe, technical tradingmonetary policy, exchange rate policy, credibility, Mediterranean, Eastern Europe, technical trading
JEL Classification: D84, E42, F31
Suggested Citation: Suggested Citation