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Title: How Long Do Unilateral Target Zones Last?

Author(s): Bernard J Dumas and Lars E.O. Svensson

Publication Date: May 1992

Keyword(s): Exchange Rates, Interventions and Reserves

Programme Area(s): International Macroeconomics

Abstract: We examine the expected survival time of a unilateral exchange rate target zone, when constraints on monetary policy prevent the central bank from exclusively focusing on defending the target zone. In general, the width of the target zone has a negligible effect on the expected survival time, and the dominant determinants are reserve levels and the degree of real and monetary divergence between the country in question and the rest of the world. For seemingly realistic parameters, the expected survival time is fairly long: a few decades rather than a few years.

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Bibliographic Reference

Dumas, B and Svensson, L. 1992. 'How Long Do Unilateral Target Zones Last?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=645