The paper aims at evaluating the impact of the 1992-93 European Monetary System crisis on the member countries. The primary focus is on the macroeconomic performance of the former "narrow band countries" of the Exchange Rate Mechanism, in particular France and Belgium, whose interest rate differentials widened and exchange rates weakened with respect to the Deutsche Mark during the crisis, but came back close to the pre-crisis level in early 1994. The analysis is carried out using the GEM macroeconomic model of the National Institute for Economic Research. The results of the simulations seem to suggest that the macroeconomic costs of the crisis have been limited but not negligible: in the absence of the crisis, French and Belgian GDP would have been higher by about 0.25-0.40 percentage points each year from 1993 to 1996. These results have to be taken with caution. The paper discusses the limitations of the approach and possible extensions as a stimulus for further research in this field.
A preliminary version of the paper was presented at the Conference "European Currency Crisis and after"; Bordeaux, 11-12, July 1994.
