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Targeting the Exchange Rate under Inflation

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  • Pessach, Shula
  • Razin, Assaf

Abstract

The purpose of this paper is to implement empirically a variant of the new theory of exchange-rate targeting, suitable for high-inflation, small, open economies. We formulate an expectations-induced relationship between the exchange rate and the fundamental, subject to random shocks and target-zone constraints on rates of depreciation. The empirical analysis provides estimates for the key parameters of the exchange-rate dynamic equation, and thereby identifies the unique roles played by policy variables and market fundamentals in foreign-exchange markets. Copyright 1994 by Blackwell Publishing Ltd.

Suggested Citation

  • Pessach, Shula & Razin, Assaf, 1994. "Targeting the Exchange Rate under Inflation," Review of International Economics, Wiley Blackwell, vol. 2(1), pages 40-49, February.
    • Handle: RePEc:bla:reviec:v:2:y:1994:i:1:p:40-49
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    Cited by:

    1. Emanuel Barnea & Moshe Kim, 2007. "Interest rate margins: a decomposition of dynamic oligopolistic conduct and market fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 17(6), pages 487-499.

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