DP398 Target Zones and Realignments

Author(s): Giuseppe Bertola, Ricardo Caballero
Publication Date: March 1990
Keyword(s): EMS, Exchange Rates Volatility, Expected Depreciation, Interventions
JEL(s): 431, 432
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=398

Recent contribution emphasize that the presence of exchange rate target zones has important effects on the within-band behaviour of exchange rates. We show that the implications of available models are strikingly inconsistent with European Monetary System data, and we propose a model of recurring realignments the predictions of which are consistent with the evidence.