Targeting the Exchange Rate under Inflation

Shula Pessach and Assaf Razin

Review of International Economics, 1994, vol. 2, issue 1, 40-49

Abstract: The purpose of this paper is to implement empirically a variant of the new theory of exchange-rate targeting, suitable for high-inflation, small, open economies. We formulate an expectations-induced relationship between the exchange rate and the fundamental, subject to random shocks and target-zone constraints on rates of depreciation. The empirical analysis provides estimates for the key parameters of the exchange-rate dynamic equation, and thereby identifies the unique roles played by policy variables and market fundamentals in foreign-exchange markets. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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Related works:
Working Paper: Targeting the Exchange Rate Under Inflation (1992)
Working Paper: Targeting the Exchange RAte under Inflation (1992)
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