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Target Zones Big and Small

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  • Francisco Delgado
  • Bernard Dumas
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    Abstract

    Under different assumptions about the underlying monetary shocks, we study target zones of various widths and the effect they have on variables like the interest differential. The stochastic disturbances assumed are successively a non-zero mean random walk and a mean reverting process. The latter is used to incorporate the "leaning against the wind" policy (intrainarginal intervention) which is prevalent in the EMS.

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    File URL: http://www.nber.org/papers/w3601.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3601.

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    Date of creation: Jan 1991
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    Publication status: published as "Target Zones, Broad and Narrow," Exchange Rate Targets and Currency Bands.eds. P. Krugman and M. Miller. Cambridge, U.K.: Cambridge University Press, for CEPR and NBER, 1992.
    Handle: RePEc:nbr:nberwo:3601

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    References

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    1. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
    2. Kenneth A. Froot & Maurice Obstfeld, 1992. "Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach," NBER Working Papers 2835, National Bureau of Economic Research, Inc.
    3. Dornbusch, Rudiger, 1987. "Collapsing exchange rate regimes," Journal of Development Economics, Elsevier, Elsevier, vol. 27(1-2), pages 71-83, October.
    4. Flood, Robert P & Garber, Peter M, 1991. "The Linkage between Speculative Attack and Target Zone Models of Exchange Rates," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(4), pages 1367-72, November.
    5. Robert P. Flood & Peter M. Garber, 1981. "A Model of Stochastic Process Switching," NBER Working Papers 0626, National Bureau of Economic Research, Inc.
    6. Kenneth A. Froot & Maurice Obstfeld, 1989. "Stochastic Process Switching: Some Simple Solutions," NBER Working Papers 2998, National Bureau of Economic Research, Inc.
    7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 11(3), pages 311-25, August.
    8. Karen K. Lewis, 1990. "Occasional Interventions to Target Rates with a Foreign Exchange Application," NBER Working Papers 3398, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Bekaert, G.R.J. & Gray, S.F., 1997. "Target zones and exchange rates: An empirical investigation," Discussion Paper, Tilburg University, Center for Economic Research 1997-22, Tilburg University, Center for Economic Research.
    2. Antoine Magnier, 1992. "Théorie des zones cibles et fonctionnement du SME," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 104(3), pages 87-113.
    3. Patrick Artus, 1992. "Passage à l'union économique et monétaire en Europe : effets sur la croissance et les politiques budgétaires," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 106(5), pages 123-137.

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