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Intramarginal Interventions, Bands and the Pattern of EMS Exchange Rate Distributions

  • Beetsma, Roel M W J
  • van der Ploeg, Frederick

The authors document an empirical puzzle for European Monetary System exchange rates during a period in which the bands on these exchanges rates were (almost) credible, i.e., exchange rate distributions are hump-shaped rather than U-shaped as predicted by the standard target zone model. The authors offer an explanation of this puzzle that is based on the combination of two realistic features, namely the presence of intramarginal interventions and wage/price sluggishness. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 35 (1994)
Issue (Month): 3 (August)
Pages: 583-602

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Handle: RePEc:ier:iecrev:v:35:y:1994:i:3:p:583-602
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  1. Beetsma, Roel & van der Ploeg, Frederick, 1992. "Exchange Rate Bands and Optimal Monetary Accommodation Under a Dirty Float," CEPR Discussion Papers 725, C.E.P.R. Discussion Papers.
  2. Alogoskoufis, George, 1991. "Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence," CEPR Discussion Papers 503, C.E.P.R. Discussion Papers.
  3. Lars E.O. Svensson, 1989. "Target Zones and Interest Rate Variability," NBER Working Papers 3218, National Bureau of Economic Research, Inc.
  4. Miller, Marcus & Weller, Paul, 1990. "Exchange Rate Bands with Price Inertia," CEPR Discussion Papers 421, C.E.P.R. Discussion Papers.
  5. Krugman, Paul R, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 669-82, August.
  6. Alan Sutherland, . "Monetary and Real Shocks and the Optimal Target Zone," Discussion Papers 92/7, Department of Economics, University of York.
  7. 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.
  8. Bertola, Giuseppe & Caballero, Ricardo, 1990. "Target Zones and Realignments," CEPR Discussion Papers 398, C.E.P.R. Discussion Papers.
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