An Empirical Exploration of Exchange Rate Target-Zones

ByDonald J Mathieson, Robert P Flood, Andrew K. Rose

February 1, 1991

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

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:
https://doi.org/10.5089/9781451843163.001
Issue:
015
Series:
Working Paper No. 1991/015
Stock No:
WPIEA0151991
ISBN:
9781451843163
ISSN:
1018-5941

IMF’s Work

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

Loading component...

IMF Working Papers