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The Linkage Between Speculative Attack and Target Zone Models of Exchange Rates

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Author Info
Robert P. Flood
Peter M. Garber

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Abstract

In this paper we generalize the target zone exchange rate as model formalized by Krugman (1988b) to include finite-sized interventions in defense of the zone. The main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror-image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the smooth pasting" condition usually invoked as a terminal condition.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2918.

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Date of creation: Apr 1989
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Publication status: published as Exchange Rate Targets and Currency Bands, eds. P. Krugman and M. Miller, Cambridge University Press, October 1991.
Handle: RePEc:nbr:nberwo:2918

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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. Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, vol. 20(1-2), pages 143-156, February. [Downloadable!] (restricted)
  2. Miller, M. & Weller, P., 1988. "Solving Stochastic Saddlepoint Systems: A Qualitative Treatment With Economic Applications," The Warwick Economics Research Paper Series (TWERPS) 309, University of Warwick, Department of Economics.
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  3. Salant, Stephen W, 1983. "The Vulnerability of Price Stabilization Schemes to Speculative Attack," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 1-38, February. [Downloadable!] (restricted)
  4. Maurice Obstfeld, 1984. "Balance-of-Payments Crises and Devaluation," NBER Working Papers 1103, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Flood, Robert P & Garber, Peter M, 1980. "An Economic Theory of Monetary Reform," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 24-58, February. [Downloadable!] (restricted)
  6. 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)
  7. 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. [Downloadable!] (restricted)
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  8. Dixit, Avinash, 1989. "Intersectoral capital reallocation under price uncertainty," Journal of International Economics, Elsevier, vol. 26(3-4), pages 309-325, May. [Downloadable!] (restricted)
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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. Jon Vilasuso & Steve Cunningham, 1996. "Tests for Nonlinearity in EMS Exchange Rates," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 1(3), pages 155-168. [Downloadable!] (restricted)
  2. Barry Eichengreen & Peter Garber, 1990. "Before the Accord: U.S. Monetary-Financial Policy 1945-51," NBER Working Papers 3380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Francisco Delgado & Bernard Dumas, 1991. "Target Zones Big and Small," NBER Working Papers 3601, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Bernard Dumas & L. Peter Jennergren & Bertil Naslund, 1993. "Currency Option Pricing in Credible Target Zones," NBER Working Papers 4522, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Ricardo J. Caballero & John V. Leahy, 1996. "Fixed Costs: The Demise of Marginal q," NBER Working Papers 5508, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Bernard Dumas & L. Peter Jennergren & Bertil Naslund, 1993. "Realignment Risk and Currency Option Pricing in Target Zones," NBER Working Papers 4458, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2004. "Monetary Sovereignty, Exchange Rates, and Capital Controls: The Trilemma in the Interwar Period," International Finance 0407008, EconWPA. [Downloadable!]
    Other versions:
  8. 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:
  9. Nelson Mark & Young-Kyu Moh, 2003. "Official Interventions and Occasional Violations of Uncovered Interest Party in the Dollar-DM Market," NBER Working Papers 9948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Sang-Moon Hahm, 2002. "Monetary Bands And Monetary Neutrality," International Economic Journal, Korean International Economic Association, vol. 16(2), pages 115-128, June. [Downloadable!] (restricted)
  11. James Bullard, 1991. "Collapsing exchange rate regimes: a reinterpretation," Working Papers 1991-003, Federal Reserve Bank of St. Louis. [Downloadable!]
  12. James M. Boughton & William H. Branson & Alphecca Muttardy, 1989. "Commodity Prices and Inflation: Evidence From Seven Large Industrial Countries," NBER Working Papers 3158, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Paul Krugman & Julio Rotemberg, 1990. "Target Zones with Limited Reserves," NBER Working Papers 3418, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. J. Isaac Miller, 2008. "Testing the Bounds: Empirical Behavior of Target Zone Fundamentals," Working Papers 0803, Department of Economics, University of Missouri. [Downloadable!]
  15. Daniel Gros & Timothy Lane, 1992. "Monetary policy interaction within or without an exchange-rate arrangement," Open Economies Review, Springer, vol. 3(1), pages 61-82, February. [Downloadable!] (restricted)
  16. Lars E.O. Svensson, 1991. "Target Zones and Interest Rate Variability," NBER Working Papers 3218, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Karen K. Lewis, 1995. "Stochastic Regime Switching and Stabilizing Policies within Regimes," NBER Working Papers 5289, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Zhen Zhu, 1997. "Dynamic Inconsistency And Exchange-Rate Target Zones: A Welfare Analysis," International Economic Journal, Korean International Economic Association, vol. 11(1), pages 15-38, April. [Downloadable!] (restricted)
  19. 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:
  20. Elias Belessakos & Michael Papaioannou, 1996. "Simple credibility tests of the ERM bands for the pound sterling and the Italian lira," Open Economies Review, Springer, vol. 7(3), pages 219-236, July. [Downloadable!] (restricted)
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