Stochastic Devaluation Risk and the Empirical Fit of Target-Zone Models

Giuseppe Bertola and Lars Svensson

The Review of Economic Studies, 1993, vol. 60, issue 3, 689-712

Abstract: A time-varying stochastic devaluation risk is introduced in a model of exchange rate target zones. The model produces realistic patterns of covariation between exchange rates and interest rate differentials, which previous target zone models have been unable to do. A "drift adjustment" method to estimate devaluation expectations from data is suggested.

Date: 1993
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Related works:
Working Paper: Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models (1991)
Working Paper: Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models (1991)
Working Paper: Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models (1990)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:60:y:1993:i:3:p:689-712.

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