The Simplest Test of Target Zone Credibility

Lars Svensson

IMF Staff Papers, 1991, vol. 38, issue 3, 655-665

Abstract: Under the assumption of no arbitrage, the credibility of an exchange rate target zone is tested by whether domestic interest rates fall within "rate-of-return bands" between the maximum and minimum home currency rate of return on a foreign investment in the absence of a devaluation. Under the assumption of uncovered interest parity, credibility is tested by whether expected future exchange rates fall within the exchange rate band. These tests are applied on data on the Swedish target zone from January 1987 through August 1990.

JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 1991
References: Add references at CitEc
Citations: View citations in EconPapers (97)

Downloads: (external link)
http://www.jstor.org/stable/3867162?origin=pubexport main text (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Simplest Test of Target Zone Credibility (1991)
Working Paper: The Simplest Test of Target Zone Credibility (1990)
Working Paper: The Simplest Test of Target Zone Credibility (1990)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:38:y:1991:i:3:p:655-665

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

Access Statistics for this article

More articles in IMF Staff Papers from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().