Exchange Rate Bands With Price Inertia
AbstractThe authors formulate a stochastic rational-expectations model of exchange-rate determination in which there are random shocks to the process of sluggish price adjustment. They examine the effects of imposing limits upon the range of variation of both nominal and real exchange rates, and describe the intervention policies needed to defend the bands in each case. The authors consider the possibility that the commitment to defend a particular nominal band may be less than fully credible and analyze the implications of operating certain rules for realignment. They contrast their results with those that arise in Paul Krugman's model of a nominal band. Copyright 1991 by Royal Economic Society.
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 337.
Length: 27 pages
Date of creation: 1990
Date of revision:
exchange rate ; prices ; international economy;
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