Devaluation Risk in Target Zones: Evidence from the Nordic Countries
AbstractIn this paper, the authors estimate devaluation risk in Denmark, Finland, Norway, and Sweden. The target exchange ra te is modeled as a censored variable, a "shadow peg" that is only observed when the equilibrium floating rate is too far from the prevailing peg. Using a two-step procedure, the authors are able to calculate time series of the probability and expected size of devaluations. Th e probability as well as the size of devaluations seem to be systematically related to a relation between the money stock, industrial production, foreign exchange reserves, and the prevailing central parity. Copyright 1993 by Royal Economic Society.
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Bibliographic InfoPaper provided by Uppsala - Working Paper Series in its series Papers with number 1991g.
Length: 40 pages
Date of creation: 1991
Date of revision:
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financial market ; exchange rate;
Other versions of this item:
- Edin, Per-Anders & Vredin, Anders, 1993. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 161-75, January.
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