Discussion paper

DP5199 Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy

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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Citation

Flandreau, M and J Komlos (2005), ‘DP5199 Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy‘, CEPR Discussion Paper No. 5199. CEPR Press, Paris & London. https://cepr.org/publications/dp5199