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Intramarginal interventions, bands and the pattern of EMS exchange rate distributions

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  • Beetsma, R.M.W.J.
  • Ploeg, F. van der

    (Tilburg University, Center for Economic Research)

Abstract

The authors document an empirical puzzle for European Monetary System exchange rates during a period in which the bands on these exchanges rates were (almost) credible, i.e., exchange rate distributions are hump-shaped rather than U-shaped as predicted by the standard target zone model. The authors offer an explanation of this puzzle that is based on the combination of two realistic features, namely the presence of intramarginal interventions and wage/price sluggishness. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1993-48.

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Date of creation: 1993
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Handle: RePEc:dgr:kubcen:199348

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Keywords: Exchange Rate; EMS; Interventions;

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  1. Miller, Marcus & Weller, Paul, 1989. "Solving Stochastic Saddlepoint Systems: A Qualitative Treatment with Economic Applications," CEPR Discussion Papers 308, C.E.P.R. Discussion Papers.
  2. Alogoskoufis, George S, 1992. "Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence," Economic Journal, Royal Economic Society, vol. 102(412), pages 461-80, May.
  3. Beetsma, Roel & van der Ploeg, Frederick, 1992. "Exchange Rate Bands and Optimal Monetary Accommodation Under a Dirty Float," CEPR Discussion Papers 725, C.E.P.R. Discussion Papers.
  4. Alan Sutherland, . "Monetary and Real Shocks and the Optimal Target Zone," Discussion Papers 92/7, Department of Economics, University of York.
  5. Bertola, Giuseppe & Svensson, Lars E O, 1993. "Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 689-712, July.
  6. Froot, Kenneth & Obstfeld, Maurice, 1991. "Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach," CEPR Discussion Papers 522, C.E.P.R. Discussion Papers.
  7. Svensson, L.E.O., 1989. "Target Zones And Interest Rate Variability," Papers 457, Stockholm - International Economic Studies.
  8. Sutherland, Alan, 1992. "Target Zone Models with Price Inertia: Some Testable Implications," CEPR Discussion Papers 698, C.E.P.R. Discussion Papers.
  9. Bertola, G. & Cabarello, R.J., 1990. "Target Zones And Realignments," Discussion Papers 1990_51, Columbia University, Department of Economics.
  10. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
  11. Miller M. & Weller, P., 1990. "Exchange Rate Bands With Price Inertia," The Warwick Economics Research Paper Series (TWERPS) 337, University of Warwick, Department of Economics.
  12. Dornbusch, Rudiger, 1982. "PPP Exchange-Rate Rules and Macroeconomic Stability," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 158-65, February.
  13. 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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