IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v30y1992i3p373-408.html
   My bibliography  Save this article

Target zones and forward rates in a model with repeated realignments

Author

Listed:
  • Bartolini, Leonardo
  • Bodnar, Gordon M.

Abstract

This paper studies the implications of the imperfect credibility of an exchange rate target zone on the term structure of forward premia. The relationship between spot and forward exchange rates of different maturities reflects the possibility of repeated realignments of the exchange rate band. The credibility of the commitment to the target zone implicit in forward market data can be extracted by estimating the model. Application to French/German data indicates that the model is capable of matching observed patterns of interest rate differentials during the EMS, while yielding estimates of the credibility parameters that accord with the experience of the FF/DM exchange rate during the 1980s.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Bartolini, Leonardo & Bodnar, Gordon M., 1992. "Target zones and forward rates in a model with repeated realignments," Journal of Monetary Economics, Elsevier, vol. 30(3), pages 373-408, December.
    • Handle: RePEc:eee:moneco:v:30:y:1992:i:3:p:373-408
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0304-3932(92)90003-K
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hans Lindberg & Lars E.O. Svensson & Paul Soderlind, 1991. "Devaluation Expectations: The Swedish Krona 1982-1991," NBER Working Papers 3918, National Bureau of Economic Research, Inc.
    2. Bartolini, Leonardo & Prati, Alessandro, 1999. "Soft exchange rate bands and speculative attacks: theory, and evidence from the ERM since August 1993," Journal of International Economics, Elsevier, vol. 49(1), pages 1-29, October.
    3. repec:bla:reviec:v:9:y:2001:i:3:p:518-30 is not listed on IDEAS
    4. Rose, Andrew K & Svensson, Lars E O, 1991. "Expected and Predicted Realignments: The FF/DM Exchange Rate During the EMS," CEPR Discussion Papers 552, C.E.P.R. Discussion Papers.
    5. Bekaert, Geert & Gray, Stephen F., 1998. "Target zones and exchange rates:: An empirical investigation," Journal of International Economics, Elsevier, vol. 45(1), pages 1-35, June.
    6. Garber, Peter M. & Svensson, Lars E.O., 1995. "The operation and collapse of fixed exchange rate regimes," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 36, pages 1865-1911, Elsevier.
    7. Pierre Siklos & Rod Tarajos, 1996. "Fundamentals and devaluation expectations in target zones: Some new evidence from the ERM," Open Economies Review, Springer, vol. 7(1), pages 35-59, January.
    8. Lars E. O. Svensson, 1992. "An Interpretation of Recent Research on Exchange Rate Target Zones," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 119-144, Fall.
    9. 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.
    10. Schmukler, Sergio L. & Serven, Luis, 2002. "Pricing currency risk under currency boards," Journal of Development Economics, Elsevier, vol. 69(2), pages 367-391, December.
    11. Antoine Magnier, 1992. "Théorie des zones cibles et fonctionnement du SME," Économie et Prévision, Programme National Persée, vol. 104(3), pages 87-113.
    12. Yum K. Kwan & Francis T. Lui & Leonard K. Cheng, 2001. "Credibility of Hong Kong's Currency Board: The Role of Institutional Arrangements," NBER Chapters, in: Regional and Global Capital Flows: Macroeconomic Causes and Consequences, pages 233-259, National Bureau of Economic Research, Inc.
    13. Svensson, Lars E. O., 1993. "Assessing target zone credibility : Mean reversion and devaluation expectations in the ERM, 1979-1992," European Economic Review, Elsevier, vol. 37(4), pages 763-793, May.
    14. Dai, Meixing, 1998. "Les effets stabilisants de la zone-cible du taux d’inflation [The stabilising effects of inflation-targeting zone]," MPRA Paper 13856, University Library of Munich, Germany, revised Nov 2001.
    15. Vajanne, Laura, . "The Exchange Rate Under Target Zones," ETLA A, The Research Institute of the Finnish Economy, number 16, June.
    16. Schmukler, Sergio L. & Serven, Luis, 2002. "Pricing currency risk : facts and puzzles from currency boards," Policy Research Working Paper Series 2815, The World Bank.
    17. Leonardo Bartolini & Lorenzo Giorgianni, 2001. "Excess Volatility of Exchange Rates with Unobservable Fundamentals," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 518-530, August.
    18. Beetsma, Roel M. W. J., 1995. "EMS exchange rate bands: a Monte Carlo investigation of three target zone models," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 311-328, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:30:y:1992:i:3:p:373-408. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.