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Title: Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy

Author(s): Marc Flandreau and John Komlos

Publication Date: August 2005

Keyword(s): Austria-Hungary, covered interest parity, credibility, market efficiency hypothesis, monetary model, monetary policy and target zone

Programme Area(s): International Macroeconomics

Abstract: A natural experiment with an exchange-rate band in Austria-Hungary in the early 20th century provides a rare opportunity to discuss critical aspects of the theory of target zones. Providing a new derivation of the target zone model as a set of nested hypotheses, the inference is drawn that policy credibility and market efficiency were paramount in the success of the Austro-Hungarian experience.

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Bibliographic Reference

Flandreau, M and Komlos, J. 2005. 'Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5199