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A quasi-bounded target zone model — Theory and application to Hong Kong dollar

C.F. Lo, C.H. Hui, Tom Fong () and S.W. Chu

International Review of Economics & Finance, 2015, vol. 37, issue C, 1-17

Abstract: This paper proposes a quasi-bounded process for exchange rate dynamics within a target zone, consistent with a credible exchange rate band in which the exchange rate cannot breach the strong-side limit while the weak-side limit is only accessible under restricted conditions of the relationship between the parameters of the drift term and stochastic part of the process. The empirical results suggest that this model can describe the dynamics of the Hong Kong dollar under a target-zone system, where the drifting force is an increasing function of foreign reserves.

Keywords: Target zone; Exchange rate system (search for similar items in EconPapers)
JEL-codes: F31 G13 (search for similar items in EconPapers)
Date: 2015
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Working Paper: A Quasi-Bounded Target Zone Model - Theory and Application to Hong Kong Dollar (2012) Downloads
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DOI: 10.1016/j.iref.2014.10.010

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