Models of the EMS: is Europe a Greater Deutschmark Area?

Abstract

Regimes of fixed exchange rates or of limited exchange-rate flexibility, like the ideal 'target zone' proposal or the real European Monetary System (EMS), raise the question of symmetry. Who runs monetary policy and who sets exchange-rate parities? If exchange rates are determined exogenously by a mechanical rule, does — or should — only one country run monetary policy, or does this depend on all members of the system?