The Linkage Between Speculative Attack and Target Zone Models of Exchange Rates

Robert Flood () and Peter Garber

No 2918, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we generalize the target zone exchange rate as model formalized by Krugman (1988b) to include finite-sized interventions in defense of the zone. The main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror-image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the smooth pasting" condition usually invoked as a terminal condition.

Date: 1989-04
Note: ITI IFM
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Published as Exchange Rate Targets and Currency Bands, eds. P. Krugman and M. Miller, Cambridge University Press, October 1991.
Published as Flood, Robert P & Garber, Peter M, 1991. "The Linkage between Speculative Attack and Target Zone Models of Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1367-72, November.

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