Target Zones and Exchange Rate Dynamics
AbstractThis paper develops a simple model of exchange rate behavior under a target zone regime. It shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is, thus, not being defended actively. Somewhat surprisingly, the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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 MIT Press in its journal Quarterly Journal of Economics.
Volume (Year): 106 (1991)
Issue (Month): 3 (August)
Contact details of provider:
Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
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.:
- Robert P. Flood & Peter M. Garber, 1982.
"A model of stochastic process switching,"
International Finance Discussion Papers
201, Board of Governors of the Federal Reserve System (U.S.).
- Paul R. Krugman, 1987. "Trigger Strategies and Price Dynamics in Equity and Foreign Exchange Markets," NBER Working Papers 2459, National Bureau of Economic Research, Inc.
- Mussa, Michael, 1979. "Empirical regularities in the behavior of exchange rates and theories of the foreign exchange market," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 9-57, January.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Krugman on blogs
by UDADISI in udadisi on 2011-10-19 13:42:00
- Krugman on the Econoblogosphere
by UDADISI in udadisi on 2012-01-18 01:39:00
- Open Science And The Econoblogosphere
by Paul Krugman in The Conscience of a Liberal on 2012-01-17 16:30:00
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading lists or Wikipedia pages:
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).
If references are entirely missing, you can add them using this form.