Target Zone Models with Price Inertia: Solutions and Testable Implications
AbstractMany recent papers suggest that the basic flex-price target zone model does not perform well empirically. This paper investigates the testable implications of a sticky-price target zone model and finds that, to a limited extent, it has a better empirical performance than the simplest flex-price model. However, in terms of nominal variables, the sticky-price model is found to be observationally equivalent to the flex-price model when the latter is extended to include intramarginal intervention and realignments. Copyright 1994 by Royal Economic Society.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 104 (1994)
Issue (Month): 422 (January)
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- Kempa, Bernd & Nelles, Michael & Pierdzioch, Christian, 1999. "The term structure of interest rates in a sticky-price target zone model," Journal of International Money and Finance, Elsevier, vol. 18(5), pages 817-834, October.
- António Portugal Duarte & João Sousa Andrade & Adelaide Duarte, 2013.
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- António Portugal Duarte & João Sousa Andrade & Adelaide Duarte, 2010. "Exchange Rate Target Zones: A Survey of the Literature," GEMF Working Papers 2010-14, GEMF - Faculdade de Economia, Universidade de Coimbra.
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[The stabilising effects of inflation-targeting zone]," MPRA Paper 13856, University Library of Munich, Germany, revised Nov 2001.
- Kempa, Bernd & Nelles, Michael & Pierdzioch, Christian, 1997. "An analytical approximation of target zone exchange rate functions: the technique of collocation," Economics Letters, Elsevier, vol. 57(3), pages 339-343, December.
- Robert Amano & Richard Black & Marcel Kasumovich, 1997. "A Band-Aid Solution to Inflation Targeting," Working Papers 97-11, Bank of Canada.
- Bernd Kempa & Michael Nelles, 1999. "Misalignments of real exchange rates and the credibility of nominal currency bands," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(4), pages 613-628, December.
- Dean Corbae & Chris Neely & Paul Weller, 1998. "Endogenous realignments and the sustainability of a target," Working Papers 1994-009, Federal Reserve Bank of St. Louis.
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