Limited Reserves and the Optimal Width of an Exchange Rate Target Zone
This paper analyses the stabilising properties of an exchange rate target zone when the stock of available reserves is limited. In these circumstances it is reasonable to suppose that the optimal bandwidth is affected by the expected lifetime of the zone. Our analysis uses Sutherland’s (1995) target zone model to assess the importance of the expected lifetime in determining the optimal width of the zone. We find that the expected lifetime tends to widen the optimal bandwidth considerably but unless the stock of initial reserves is small and/or the fundamentals drift large, the extra lifetime bought is small in percentage terms. Copyright Springer Science + Business Media, Inc. 2005
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Krugman, Paul & Miller, Marcus, 1992.
"Why Have a Target Zone?,"
CEPR Discussion Papers
718, C.E.P.R. Discussion Papers.
- Krugman, Paul & Miller, Marcus, 1993. "Why have a target zone?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 38(1), pages 279-314, June.
- Krugman, P. & Miller, M., 1992. "Why Have a Target Zone?," The Warwick Economics Research Paper Series (TWERPS) 394, University of Warwick, Department of Economics.
- Dumas, Bernard J & Svensson, Lars E O, 1992.
"How Long Do Unilateral Target Zones Last?,"
CEPR Discussion Papers
645, C.E.P.R. Discussion Papers.
- Dumas, B. & Svensson, L.E.O., 1994. "How Long Do Unilateral Target Zones Last?," DELTA Working Papers 94-06, DELTA (Ecole normale supérieure).
- Dumas, B. & Svensson, E.O., 1991. "How Long Do Unilateral Target Zones Last?," Papers 509, Stockholm - International Economic Studies.
- Dumas, B. & Svensson, L.E.O., 1991. "How Long do Unilateral Target Zones last?," Weiss Center Working Papers 1991-2, Wharton School - Weiss Center for International Financial Research.
- Bernard Dumas & Lars E.O. Svensson, 1991. "How Long do Unilateral Target Zones Last?," NBER Working Papers 3931, National Bureau of Economic Research, Inc.
- Bernard Dumas & Lars Svensson, 1993. "How Long do Unilateral Target Zones Last?," Working Papers hal-00610765, HAL.
- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
- William Poole, 1970.
"Optimal choice of monetary policy instruments in a simple stochastic macro model,"
57, Board of Governors of the Federal Reserve System (U.S.).
- William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
- Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
- Miller, Marcus & Weller, Paul, 1990.
"Exchange Rate Bands with Price Inertia,"
CEPR Discussion Papers
421, C.E.P.R. Discussion Papers.
- Miller M. & Weller, P., 1990. "Exchange Rate Bands With Price Inertia," The Warwick Economics Research Paper Series (TWERPS) 337, University of Warwick, Department of Economics.
- Beetsma, R.M.W.J. & van der Ploeg, F., 1994.
"Macroeconomic stabilisation and intervention policy under an exchange rate band,"
1994-27, Tilburg University, Center for Economic Research.
- Beetsma, Roel M. W. J. & van der Ploeg, Frederick, 1998. "Macroeconomic stabilization and intervention policy under an exchange rate band," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 339-353, April.
- Beetsma, Roel & van der Ploeg, Frederick, 1994. "Macroeconomic Stabilization and Intervention Policy Under an Exchange Rate Band," CEPR Discussion Papers 925, C.E.P.R. Discussion Papers.
- Broome, Simon, 2001. "The lifetime of a unilateral target zone: some extended results," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 419-438, June.
- Klein, Michael W. & Marion, Nancy P., 1997.
"Explaining the duration of exchange-rate pegs,"
Journal of Development Economics,
Elsevier, vol. 54(2), pages 387-404, December.
- Klein, Michael W, 1990. "Playing with the Band: Dynamic Effects of Target Zones in an Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(4), pages 757-72, November.
- Alan Sutherland, .
"Monetary and Real Shocks and the Optimal Target Zone,"
92/7, Department of Economics, University of York.
- Sutherland, Alan, 1995. "Monetary and real shocks and the optimal target zone," European Economic Review, Elsevier, vol. 39(1), pages 161-172, January.
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
- William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
When requesting a correction, please mention this item's handle: RePEc:kap:openec:v:16:y:2005:i:3:p:263-281. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.