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Bayesian Target Zones

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  • Catherine S. Forbes

    (Monash University)

  • Paul Kofman

    (University of Technology)

Abstract

Several authors have postulated econometric models for exchange rates restricted to lie within known target zones. However, it is not uncommon to observe exchange rate data with known limits that are not fully 'credible'; that is, where some of the observations fall outside the stated range. An empirical model for exchange rates in a soft target zone where there is a controlled probability of the observed rates exceeding the stated limits is developed in this paper. A Bayesian approach is used to analyse the model, which is then demonstrated on Deutschemark-French franc and ECU-French franc exchange rate data.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0575.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0575

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  1. Geert Bekaert & Stephen F. Gray, 1999. "Target Zones and Exchange Rates: An Empirical Investigation," NBER Working Papers 5445, National Bureau of Economic Research, Inc.
  2. Alejandro M. Werner, 1996. "Target Zones and Realignment Expectations: The Israeli and Mexican Experiences," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 571-586, September.
  3. Marcus Miller & Paul Weller, 1991. "Currency Bands, Target Zones, and Price Flexibility," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 184-215, March.
  4. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
  5. Honohan, Patrick, 1998. "A pitfall in computing exchange rate density in the EMS band," Journal of International Money and Finance, Elsevier, vol. 17(5), pages 839-853, October.
  6. Kofman, Paul & de Vaal, Albert & de Vries, Casper G., 1993. "Fixing soft margins," Journal of International Economics, Elsevier, vol. 34(3-4), pages 359-374, May.
  7. Kees G. Koedijk & Philip A. Stork & Casper G. De Vries, 1998. "An EMS target zone model in discrete time," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 31-48.
  8. Mizrach, Bruce, 1995. "Target zone models with stochastic realignments: an econometric evaluation," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 641-657, October.
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Cited by:
  1. Theis Lange, 2009. "First and second order non-linear cointegration models," CREATES Research Papers 2009-04, School of Economics and Management, University of Aarhus.
  2. 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.
  3. Jes�s Rodríguez López & Hugo Rodríguez Mendizábal, 2007. "The Optimal Degree of Exchange Rate Flexibility: a Target Zone Approach," Review of International Economics, Wiley Blackwell, vol. 15(4), pages 803-822, 09.
  4. Oleg Korenok & Stanislav Radchenko, 2005. "Expectations Anchoring in Inflation Targeting Regimes," Working Papers 0503, VCU School of Business, Department of Economics.

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