On the sustainability of exchange rate target zones with central parity realignments

Enrique Martínez-García
Authors registered in the RePEc Author Service: Enrique Martínez García ()

Economics Letters, 2015, vol. 134, issue C, 86-89

Abstract: I show that parity realignments alone do not suffice to ensure the long-run sustainability of an exchange rate target zone with imperfect credibility due to the gambler’s ruin problem. However, low credibility and frequent realignments can destabilize the exchange rate.

Keywords: Nominal exchange rate; Target zones; Discrete intervention; Central parity realignment; Imperfect credibility (search for similar items in EconPapers)
JEL-codes: E58 F31 F33 F41 G15 (search for similar items in EconPapers)
Date: 2015
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Working Paper: On the sustainability of exchange rate target zones with central parity realignments (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:134:y:2015:i:c:p:86-89

DOI: 10.1016/j.econlet.2015.06.018

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