Target Zones Big and Small

Francisco Delgado and Bernard Dumas ()

No 3601, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Under different assumptions about the underlying monetary shocks, we study target zones of various widths and the effect they have on variables like the interest differential. The stochastic disturbances assumed are successively a non-zero mean random walk and a mean reverting process. The latter is used to incorporate the "leaning against the wind" policy (intrainarginal intervention) which is prevalent in the EMS.

Date: 1991-01
Note: ITI IFM
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Published as "Target Zones, Broad and Narrow," Exchange Rate Targets and Currency Bands.eds. P. Krugman and M. Miller. Cambridge, U.K.: Cambridge University Press, for CEPR and NBER, 1992.

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