Realignments of target zone exchange systems: what do we know?

Christopher Neely

No 1994-020, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This article surveys recent work on forecasting realignments and estimating the credibility of target zones. The literature finds that realignments are somewhat predictable from readily available information such as interest rates and position of the exchange rate within the band. The relationship between realignment expectations and macrovariables is weak and uncertain. Realignments are said to \"surprise\" policy makers and market participants; they can only be predicted a short time before they happen. Further work on the formation of expectations would be an important contribution to future research in this area. Additionally, the role of the U.S. dollar in ERM realignments is often noted but has not yet been incorporated into the estimation techniques.

Keywords: Foreign; exchange; rates (search for similar items in EconPapers)
Date: 1994
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Citations: View citations in EconPapers (7)

Published in Federal Reserve Bank of St. Louis Review, September/October 1994, 76(5)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:1994-020

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DOI: 10.20955/wp.1994.020

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