Open AccessPosted Content
Target Zones and Realignments
Reads0
Chats0
TLDR
The authors construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence.Abstract:
Recent contributions emphasize that the presence of exchange-rate target zones has important effects on the within-band behavior of exchange rates when agents are forward-looking. The authors find that the implications of available models are inconsistent with European exchange-rate data, and they suggest that the frequent realignments occurring in the period they consider may be responsible for this. They construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence. Copyright 1992 by American Economic Association.read more
Citations
More filters
Posted Content
Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models
TL;DR: In this paper, a tractable and realistic nonlinear model of exchange rate dynamics is proposed, and its predictions are consistent with available empirical evidence on exchange rate and interest differential behavior in real-life target zones.
Journal ArticleDOI
An Interpretation of Recent Research on Exchange Rate Target Zones
TL;DR: In this paper, the authors present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones, with emphasis on main ideas and results and without technical detail, without technical details.
Journal ArticleDOI
Implied exchange rate distributions: evidence from OTC option markets
TL;DR: This paper used a rich new dataset of option prices on the dollar-mark, dollar-yen, and key EMS cross-rates to extract the entire risk-neutral probability density function (pdf) over horizons of 1 and 3 months.
Journal ArticleDOI
Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models
TL;DR: In this paper, an exchange rate fluctuates between given boundaries for random lengths of time and jumps discretely when devaluation occurs, and the expected rate of depreciation when the likelihood and the size of devaluations vary stochastically over time.
Journal ArticleDOI
Optimal central bank intervention in the foreign exchange market
TL;DR: In this article, the authors consider a currency with exchange rate dynamics modeled as a geometric Brownian motion and find the optimal level of intervention, and the optimal sizes of the interventions, so as to minimize the total cost.
References
More filters
Journal ArticleDOI
Target Zones and Exchange Rate Dynamics
TL;DR: The authors developed a simple model of exchange rate behavior under a target zone regime and showed that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behaviour even when the exchange rate lies inside the zone and is thus not being defended actively.
Posted Content
Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models
TL;DR: In this paper, a tractable and realistic nonlinear model of exchange rate dynamics is proposed, and its predictions are consistent with available empirical evidence on exchange rate and interest differential behavior in real-life target zones.
Posted Content
Exchange Rate Dynamics Under Stochastic Regime Shifts: a Unified Approach
TL;DR: In this paper, the exchange rate dynamics in alternative cases where the authorities promise to confine a floating rate within a predetermined range and peg the currency once it reaches a predetermined future level are examined.