The Scope for Monetary Independence in Exchange Rate Target Zones Broad and Narrow

Margaret Huley ()

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: Placing limits on the movement of economic fundamentals in order to maintain an exchange rate within a target zone also puts a target zone around interest rate differentials. The bandwidth of exchange rate and interest rate differentials target zones will be different except at one point; it is suggested that this point gives a useful partitioning of target zones into broad and narrow categories. For realistic parameter values, this occurs at an exchange rate target zone of plus or minus 3.2%.

Keywords: exchange rate; target zones; bandwidths; monetary independence; exchange rate mechanism (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Pages: 10 pages
Date: 1997-08
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