Monetary Contracting between Central Banks and the Design of Sustainable Exchange-Rate Zones (Reprint 035)

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Monetary Contracting between Central Banks and the Design of Sustainable Exchange-Rate Zones (Reprint 035)

Author Info

Francisco Delgado
Bernard Dumas

Abstract

An exchange-rate system is a set of contracts which commits Central Banks to intervene in the foreign-exchange market. The design features of the system include: the rules of intervention, the limits placed on exchange rates and the "crisis scenario" which describes possible transitions to new regimes in case one Central bank runs out of reserves or borrowing capacity. This paper considers the various trade-offs one faces in designing an exchange-rate system. Svensson (1989) has already analyzed the degree of variability in the exchange rate, the interest rate and the fundamentals. But the tradeoff also pertains to the amount of reserves which the Central banks must have on hand in order to forestall a speculative attack and make the system sustainable. The amount of reserves needed depends crucially on the assumed crisis scenario.

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Paper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 20-90.

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Handle: RePEc:fth:pennfi:20-90

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Giuseppe Bertola & Lars E.O. Svensson, 1991. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," NBER Working Papers 3576, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Bertola, G. & Svensson, L.E., 1990. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," Papers 481, Stockholm - International Economic Studies.
- Bertola, Giuseppe & Svensson, Lars E O, 1991. "Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models," CEPR Discussion Papers 513, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Bertola, Giuseppe & Svensson, Lars E O, 1993. "Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models," Review of Economic Studies, Blackwell Publishing, vol. 60(3), pages 689-712, July. [Downloadable!] (restricted)
Elias Belessakos & Rahim Loufir, 1993. "Exchange Rate Target Zones in a Utility Maximizing Framework," Annales d'Economie et de Statistique, ADRES, issue 31, pages 02, Juillet-S. [Downloadable!]
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Other versions:
- Dumas, B. & Jennergren, L.P. & Naslund, B., 1993. "Currency Option Pricing in Credible Target Zones," Weiss Center Working Papers 93-7, Wharton School - Weiss Center for International Financial Research.
Lars E.O. Svensson, 1990. "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," NBER Working Papers 3466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Svensson, Lars E O, 1991. "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," CEPR Discussion Papers 494, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Svensson, L.E., 1990. "The Foreign Exchange Risk Premium in a Target Zone with Devaluation Risk," Papers 475, Stockholm - International Economic Studies.
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Dominique Hachette & Fernando Ossa & Francisco Rosende, 1996. "Aspectos Monetarios y Macroeconómicos de la Integración," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 153-183. [Downloadable!]
Willem H. Buiter & Paolo A. Pesenti, 1990. "Rational Speculative Bubbles in an Exchange Rate Target Zone," NBER Working Papers 3467, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Buiter, Willem H & Pesenti, Paolo, 1990. "Rational Speculative Bubbles in an Exchange Rate Target Zone," CEPR Discussion Papers 479, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Bernard Dumas & Lars E.O. Svensson, 1994. "How Long do Unilateral Target Zones Last?," NBER Working Papers 3931, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Dumas, B. & Svensson, E.O., 1991. "How Long Do Unilateral Target Zones Last?," Papers 509, Stockholm - International Economic Studies.
- Dumas, Bernard J & Svensson, Lars E O, 1992. "How Long Do Unilateral Target Zones Last?," CEPR Discussion Papers 645, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Dumas, B. & Svensson, L.E.O., 1991. "How Long do Unilateral Target Zones last?," Weiss Center Working Papers 1991-2, Wharton School - Weiss Center for International Financial Research.
- Dumas, B. & Svensson, L.E.O., 1994. "How Long Do Unilateral Target Zones Last?," DELTA Working Papers 94-06, DELTA (Ecole normale supérieure).
- Dumas, Bernard & Svensson, Lars E. O., 1994. "How long do unilateral target zones last?," Journal of International Economics, Elsevier, vol. 36(3-4), pages 467-481, May. [Downloadable!] (restricted)

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