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An Empirical Exploration of Exchange Rate Target-Zones

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  • Robert P. Flood
  • Andrew K. Rose
  • Donald J. Mathieson

Abstract

In the context of a flexible-price monetary exchange rate model and the assumption of uncovered interest parity, we obtain a measure of the fundamental determinant of exchange rates. Daily data for the European Monetary System are used to explore the importance of non-linearities in the relationship between the exchange rates and fundamentals. Many implications of existing "target-zone" exchange rate models are tested; little support is found for existing non-linear models of limited exchange rate flexibility.

Suggested Citation

  • Robert P. Flood & Andrew K. Rose & Donald J. Mathieson, 1990. "An Empirical Exploration of Exchange Rate Target-Zones," NBER Working Papers 3543, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3543
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    References listed on IDEAS

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