Were The Peseta Exchange Rate Crises Forecastable During Target Zone Period?

M. Isabel Campos and Zenón Jiménez-Ridruejo
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M. Isabel Campos: University of Valladolid
Zenón Jiménez-Ridruejo: University of Valladolid

No 00-07, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: During the 1990’s several fixed or quasi-fixed exchange rate systems collapsed. Currency crises have happened in both developed and emerging countries so it is necessary to forecast and avoid them. However, financial market crises have been extremely di¢cult to forecast. Economic agents’ expectations are non-observable variables that cannot be ignored in our models. In addition, if we want to study the European case during the 1990’s, the censored disposition of the exchange rate cannot be ignored either. We propose a discrete time target zones model where these aspects are taken into account. It will be tested in a peseta/deutsche mark exchange rate framework, from June 1989 to December 1998. The results indicate differences between before and after the shift in band widths in August 1993.

Keywords: Target Zones; Currency Crises; Mean Reversion; Realignment Probability (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2000-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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