Soft exchange rate bands and speculative attacks: theory and evidence from the ERM since August 1993

Leonardo Bartolini and Alessandro Prati

No 43, Staff Reports from Federal Reserve Bank of New York

Abstract: We present a model of a "soft" exchange rate target zone and interpret it as a stylized description of the post-August 1993 ERM. Our central bank targets a moving average of the current and past exchange rates, rather than the exchange rate's current level, thus allowing the rate to move within wide margins in the short run, but within narrow margins in the long run. For realistic parameters, soft target zones are significantly less vulnerable to speculative attacks than "hard" target zones. These predictions are consistent with the ERM's experience and the abatement of speculative pressure in European markets since the bands' widening in 1993.

Keywords: Foreign exchange rates; European Monetary System (Organization) (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr43.html (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr43.pdf (application/pdf)

Related works:
Journal Article: Soft exchange rate bands and speculative attacks: theory, and evidence from the ERM since August 1993 (1999)
Working Paper: Soft Exchange Rate Bands and Speculative Attacks: Theory, and Evidence from the ERM since August 1993 (1998)
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:fip:fednsr:43

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().