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An Empirical Exploration of Exchange Rate Target-Zones
Author:
Mr. Donald J Mathieson
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Mr. Robert P Flood
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Mr. Andrew K. Rose null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1991: Issue 015
Language:
English
Publication Date:
01 Feb 1991
DOI:
https://doi.org/10.5089/9781451843163.001
ISBN:
9781451843163
ISSN:
1018-5941
Pages:
73
Keywords:
WP; interest rate; natural logarithm; risk premium; EMS; exchange rates; nonlinear; target-zone.; interest rate differential; position graph; exchange rate band; interest rate volatility; exchange rate volatility; exchange rate fundamental; Exchange rate modelling; Managed exchange rates; Exchange rate arrangements; Crawling peg
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund