American Economic Review Vol. 82 No. 3 1992
Target Zones and Realignments
Abstract
Recent contributions emphasize that the presence of exchange-rate target zones has important effects on the within-band behavior of exchange rates when agents are forward-looking. We find that the implications of available models are inconsistent with European exchange-rate data, and we suggest that the frequent realignments occurring in the period we consider may be responsible for this. We construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence.
- Volume
- 82
- Issue
- 3
- Pages
- 520-536
- Sources
- bibtex:phds-export.bib