The Credibility of Nordic Exchange Rate Bands: 1987-1991

Sami Geadah, Lars Svensson and Tapio Saavalainen

No 1992/003, IMF Working Papers from International Monetary Fund

Abstract: The credibility of the exchange rate bands in the Nordic countries during 1987-91 is examined with two tests. The results suggest that the credibility of Finland’s exchange rate band within a twelve-month horizon could not be rejected except in the fall of 1991; however, the band lacked credibility within a five-year horizon throughout the period. Denmark’s and Norway’s bands lacked both short- and long-term credibility at the beginning of the period, but credibility could not be rejected from 1989 for Norway and as of 1990 for Denmark. The credibility of Sweden’s band within a one-year horizon could not be rejected up to fall 1989, but thereafter its credibility deteriorated sharply.

Keywords: WP; exchange rate band; forward exchange rate; risk premium; rate-of-return band; exchange rate credibility; band of Denmark; exchange rate expectation; exchange rate target; Exchange rates; Forward exchange rates; Crawling peg; Interest rate parity; International reserves; Middle East (search for similar items in EconPapers)
Pages: 24
Date: 1992-01-01
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