The researchers analyzed exchange rate expectations in the European Monetary System from 1987 to 1992. They looked at factors like interest rates, inflation, and government deficits to see how they affected the likelihood of currency realignments. They found that as German economic conditions improved and aligned with other countries in the system, exchange rate stability increased. The crisis in 1992 was caused by a change in the German economy and strict monetary policies. Weak-currency countries with high deficits were more likely to face devaluation, while hard-currency countries remained stable even with growing deficits. Overall, the study shows how economic factors can impact exchange rate stability in a currency system.