Target Zones and Exchange Rate Dynamics
Title | Target Zones and Exchange Rate Dynamics PDF eBook |
Author | |
Publisher | |
Pages | |
Release | 1988 |
Genre | |
ISBN |
Target zones and exchange rate dynamics
Title | Target zones and exchange rate dynamics PDF eBook |
Author | Paul Krugman |
Publisher | |
Pages | 13 |
Release | 1988 |
Genre | |
ISBN |
Target Zones and Exchange Rate Dynamics
Title | Target Zones and Exchange Rate Dynamics PDF eBook |
Author | Paul R. Krugman |
Publisher | |
Pages | 12 |
Release | 1988 |
Genre | Foreign exchange |
ISBN |
This paper develops a highly simplified model of exchange rate behavior within the band under a target zone regime. It shows that the expectation that authorities will defend the band exerts a stabilizing effect on exchange rate behavior within the band, even when the authorities are not actively intervening. The extent of stabilization can be related in a straightforward way to three factors: the sensitivity of the current exchange rate to expected depreciation, the volatility of the process driving exchange rate "fundamentals", and the credibility of the commitment by authorities to defend the target zone
Exchange Rate Dynamics in a Target Zone - a Heterogenous Expectations Approach
Title | Exchange Rate Dynamics in a Target Zone - a Heterogenous Expectations Approach PDF eBook |
Author | Christian Bauer |
Publisher | |
Pages | 0 |
Release | 2007 |
Genre | |
ISBN | 9783865582997 |
Exchange Rate Dynamics in a Multilateral Target Zone
Title | Exchange Rate Dynamics in a Multilateral Target Zone PDF eBook |
Author | Angel Serrat |
Publisher | |
Pages | |
Release | 2001 |
Genre | |
ISBN |
This paper presents a model of exchange rate behavior in a multilateral target zone. The model produces new economic insights beyond the well-known bilateral model of Krugman (1991), which is obtained as a special case. The paper also introduces a new class of stochastic processes in economics, namely multidimensional reflected diffusion processes. The model reverts the counterfactual predictions of the bilateral model and allows us to reconcile target zone models with the most salient empirical features of exchange rate behavior.Two main features characterize the economics of exchange rates in a multilateral target zone: i) The restrictions on interventions imposed by cross-currency constraints: when the supply of a currency changes, all exchange rates involving that currency will be affected, regardless of their position within their respective bands, and ii) Cooperation in sharing the intervention burden: depending on the intervention rules, a shock in the fundamentals of any country will induce a revision of the expectation of future interventions of other countries. Thus, in general, the exchange rate between any two countries will depend on the fundamentals of third countries when more than two currencies are involved in the system.
Target Zones and Interest Rate Variability
Title | Target Zones and Interest Rate Variability PDF eBook |
Author | Mr.Lars E. O. Svensson |
Publisher | International Monetary Fund |
Pages | 52 |
Release | 1990-04-01 |
Genre | Business & Economics |
ISBN | 1451979991 |
The trade-off between interest rate variability and the width of an exchange rate target zone is examined, using the regulated Brownian motion model of target zones. The interest rate differential’s asymptotic (unconditional) variability is increasing in the exchange rate band for narrow bands; whereas it is slowly decreasing for wide bands. The interest rate differential’s instantaneous (conditional) variability is decreasing in the exchange rate band. The model is extended to include a realignment/devaluation risk, as well as an endogenous exchange rate risk premium. The risk premium is small for reasonable parameter values.
Exchange Rate Dynamics
Title | Exchange Rate Dynamics PDF eBook |
Author | Eric J. Pentecost |
Publisher | Edward Elgar Publishing |
Pages | 248 |
Release | 1993 |
Genre | Business & Economics |
ISBN |
This work examines the development of the determinants of the exchange rate system since the mid-1970s. It scrutinises the main theoretical models of exchange rate determination and assesses their empirical validity drawn from recent econometric results (based on cointegration methodology).