Implicit bands in the Spanish peseta/Deutschmark exchange rate, 1965-1998

Abstract

The objective of this article is to identify implicit bands for the Spanish peseta/Deutschmark exchange rate. To this end, based on the 'natural' classification approach suggested by Reinhart and Rogoff (2004), we propose a statistical test to assess the statistical significance of the outcome of their classifying algorithm. The test is applied to the period 1965-1998, indicating our results existence of fluctuation bands in the 1980s and 1990s, before and after the entry of the peseta into the European Monetary System.