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How Long Do Unilateral Target Zones Last?

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Author Info
Dumas, Bernard J
Svensson, Lars E O

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Abstract

We examine the expected survival time of a unilateral exchange rate target zone, when constraints on monetary policy prevent the central bank from exclusively focusing on defending the target zone. In general, the width of the target zone has a negligible effect on the expected survival time, and the dominant determinants are reserve levels and the degree of real and monetary divergence between the country in question and the rest of the world. For seemingly realistic parameters, the expected survival time is fairly long: a few decades rather than a few years.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 645.

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Date of creation: May 1992
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Handle: RePEc:cpr:ceprdp:645

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Related research
Keywords: Exchange Rates; Interventions; Reserves;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

References listed on IDEAS
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.:

  1. Robert P. Flood & Peter M. Garber, 1983. "A Model of Stochastic Process Switching," NBER Working Papers 0626, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Krugman, Paul R, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 669-82, August. [Downloadable!] (restricted)
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  3. Delgado, F. & Dumas, B., 1990. "Monetary Contracting Between Central Banks And The Design Of Sustainable Exchange-Rate Zones," Weiss Center Working Papers 20-90, Wharton School - Weiss Center for International Financial Research.
  4. Willem H. Buiter & Vittorio U. Grilli, 1989. "The "Gold Standard Paradox" and its Resolution," NBER Working Papers 3178, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Francisco Delgado & Bernard Dumas, 1990. "Monetary Contracting Between Central Banks and the Design of SustainableExchange-Rate Zones," NBER Working Papers 3440, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Francisco Delgado & Bernard Dumas, . "Monetary Contracting between Central Banks and the Design of Sustainable Exchange-Rate Zones (Reprint 035)," Rodney L. White Center for Financial Research Working Papers 20-90, Wharton School Rodney L. White Center for Financial Research.
  7. Stephen W. Salant & Dale W. Henderson, 1976. "Market anticipations, government policy, and the price of gold," International Finance Discussion Papers 81, Board of Governors of the Federal Reserve System (U.S.).
  8. Svensson, Lars E. O., 1991. "Target zones and interest rate variability," Journal of International Economics, Elsevier, vol. 31(1-2), pages 27-54, August. [Downloadable!] (restricted)
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  9. Buiter, Willem H, 1989. "A Viable Gold Standard Requires Flexible Monetary and Fiscal Policy," Review of Economic Studies, Blackwell Publishing, vol. 56(1), pages 101-17, January. [Downloadable!] (restricted)
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  10. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August. [Downloadable!] (restricted)
  11. Paul Krugman & Julio Rotemberg, 1990. "Target Zones with Limited Reserves," NBER Working Papers 3418, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Lindbecg, H. Soderlind, P., 1992. "Target Zone Models and the Intervention Policy; The Swedish Case," Papers 496, Stockholm - International Economic Studies.
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Cited by:
(explanations, 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.)

  1. Simon Broome, 2003. "Limited Reserves and the Optimal Width of an Exchange Rate Target zone," Economics, Finance and Accounting Department Working Paper Series n1220803, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
    Other versions:
  2. Raul A. Feliz & John H. Welch, 1993. "The credibility and performance of unilateral target zones: a comparison of the Mexican and Chilean cases," Research Paper 9331, Federal Reserve Bank of Dallas. [Downloadable!]
  3. Staffan Ringbom, 2003. "Narrow Target Zones within Broad Zones: A Non-Speculative Exchange Rate Solution with Limited Resources," Open Economies Review, Springer, vol. 14(3), pages 319-341, July. [Downloadable!] (restricted)
  4. Leonardo Bartolini & Alessandro Prati, 1998. "Soft exchange rate bands and speculative attacks: theory and evidence from the ERM since August 1993," Staff Reports 43, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  5. M. Sbracia & Alessandro Prati, 2002. "Currency Crises and Uncertainty About Fundamentals," IMF Working Papers 02/3, International Monetary Fund. [Downloadable!]
    Other versions:
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