Annotation This paper examines the factors underlying the stability of inflation observed following devaluations of the Spanish peseta, which took place during the 1992-93 Exchange Rate Mechanism (ERM) crisis. the long-run equilibrium relationships between the exchange rate and the aggregate price indices are estimated using the Johansen maximum likelihood-method. the short-run dynamics are obtained from error-correction models. the model is then simulated by calibrating changes in the exogenous variables to their actual values. the results indicate that the cost-push-up effect of devaluations may have been completely offset by determinants of the cyclical position of the economy and the low inflation rate in 1993-94 should not be viewed as unusual
Bibliography
Includes bibliographical references (pages 20-23)
Notes
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