An Empirical Exploration of Exchange Rate Target-Zones
February 1, 1991
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Summary
In the context of a flexible-price monetary exchange rate model and the assumption of uncovered interest parity, we obtain a measure of the fundamental determinant of exchange rates. Daily data for the European Monetary System are used to explore the importance of nonlinearities in the relationship between the exchange rates and fundamentals. Many implications of existing “target-zone” exchange rate models are tested; little support is found for existing nonlinear models of limited exchange rate flexibility.
Subject: Crawling peg, Exchange rate arrangements, Exchange rate modelling, Exchange rates, Foreign exchange, Managed exchange rates
Keywords: Crawling peg, EMS, Exchange rate arrangements, exchange rate band, exchange rate fundamental, Exchange rate modelling, exchange rate volatility, exchange rates, interest rate, interest rate differential, interest rate volatility, Managed exchange rates, natural logarithm, nonlinear, position graph, risk premium, target-zone., WP
Pages:
73
Volume:
1991
DOI:
Issue:
015
Series:
Working Paper No. 1991/015
Stock No:
WPIEA0151991
ISBN:
9781451843163
ISSN:
1018-5941
