A target zone model with the terminal condition of joining a currency area
AbstractThis study aims to generalize the Krugman target zone model for the case of terminal condition of joining a currency area. Using the terminal condition and the 'smooth pasting conditions', both analytical and numerical solutions of the problem are obtained. The proposed model is more adequate than the Krugman one when the moment of joining currency area approaches. The properties of the model highlight that monetary authorities have some degree of monetary independence until the moment of entering a currency zone. The model's outcomes are consistent with dynamic properties of the exchange rate time series of the European countries that entered euro zone in January 1999.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics Letters.
Volume (Year): 18 (2011)
Issue (Month): 13 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAEL20
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Svensson, Lars E O, 1992.
"Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates,"
CEPR Discussion Papers
742, C.E.P.R. Discussion Papers.
- E.O. Svensson, Lars, 1994. "Why exchange rate bands? : Monetary independence in spite of fixed exchange rates," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 157-199, February.
- Lars E.O. Svensson, 1994. "Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates," NBER Working Papers 4207, National Bureau of Economic Research, Inc.
- Svensson, L.E.O., 1992. "Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates," Papers 521, Stockholm - International Economic Studies.
- Krugman, Paul R, 1991.
"Target Zones and Exchange Rate Dynamics,"
The Quarterly Journal of Economics,
MIT Press, vol. 106(3), pages 669-82, August.
- Dumas, Bernard, 1991. "Super contact and related optimality conditions," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 675-685, October.
- Dixit, Avinash, 1991. "A simplified treatment of the theory of optimal regulation of Brownian motion," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 657-673, October.
- Lundbergh, Stefan & Terasvirta, Timo, 2006.
"A time series model for an exchange rate in a target zone with applications,"
Journal of Econometrics,
Elsevier, vol. 131(1-2), pages 579-609.
- Timo Terasvirta, 2004. "A Time Series Model for an Exchange Rate in a Target Zone with Applications," Econometric Society 2004 Australasian Meetings 340, Econometric Society.
- Lundbergh, Stefan & Teräsvirta, Timo, 2003. "A time series model for an exchange rate in a target zone with applications," Working Paper Series in Economics and Finance 533, Stockholm School of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.