The authors use the comparative behavior of real output growth and inflation behavior of members and nonmembers of the exchange rate mechanism (ERM) to analyze the importance of ERM membership on macroeconomic performance. An econometric procedure for identifying temporary and permanent shocks to output is proposed and executed. The results confirm that the ERM has acted as a vehicle for macropolicy coordination between members. The authors also investigate several issues relating to the hypothesis of global economic 'tri-polarity' between the United States, Germany, and Japan.