Exchange Rate Bands with Point Process Fundamentals

Author/Editor:

W. R. M. Perraudin

Publication Date:

November 1, 1990

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This note derives closed form solutions for exchange rates in terms of fundamentals within a fully credible band exchange rate regime when the fundamentals are driven by Brownian motion and multiple point processes. The inclusion of point processes allows one to relax quite substantially the distributional assumptions about exchange rates implicit in models based on Brownian motions alone, and should therefore prove of use in empirical applications. Models with discontinuous driving processes also differ from the Brownian motion model in that monetary authorities will be obliged periodically to intervene on a large scale in discrete amounts.

Series:

Working Paper No. 90/108

English

Publication Date:

November 1, 1990

ISBN/ISSN:

9781451946345/1018-5941

Stock No:

WPIEA1081990

Format:

Paper

Pages:

26

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