Currency Bands, Target Zones, and Price Flexibility

Marcus Miller and Paul Weller
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Paul Weller: International Monetary Fund

IMF Staff Papers, 1991, vol. 38, issue 1, 184-215

Abstract: Exchange rate behavior is analyzed in the context of a stochastic rational expectations model in which there are random shocks to the price-setting mechanism and in which the authorities choose to impose either nominal or real exchange rate bands. The effects of rules for realignment of the band are also examined. Results are compared with those that emerge from a simple monetary model subject to velocity shocks.

Date: 1991
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