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Were The Peseta Exchange Rate Crises Forecastable During Target Zone Period?

Author

Listed:
  • M. Isabel Campos

    (University of Valladolid)

  • Zenón Jiménez-Ridruejo

    (University of Valladolid)

Abstract

During the 1990’s several fixed or quasi-fixed exchange rate systems collapsed. Currency crises have happened in both developed and emerging countries so it is necessary to forecast and avoid them. However, financial market crises have been extremely di¢cult to forecast. Economic agents’ expectations are non-observable variables that cannot be ignored in our models. In addition, if we want to study the European case during the 1990’s, the censored disposition of the exchange rate cannot be ignored either. We propose a discrete time target zones model where these aspects are taken into account. It will be tested in a peseta/deutsche mark exchange rate framework, from June 1989 to December 1998. The results indicate differences between before and after the shift in band widths in August 1993.

Suggested Citation

  • M. Isabel Campos & Zenón Jiménez-Ridruejo, 2000. "Were The Peseta Exchange Rate Crises Forecastable During Target Zone Period?," Working Papers 00-07, Asociación Española de Economía y Finanzas Internacionales.
  • Handle: RePEc:aee:wpaper:0007
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    References listed on IDEAS

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    More about this item

    Keywords

    Target Zones; Currency Crises; Mean Reversion; Realignment Probability;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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