Download This PaperOn the Sustainability of Exchange Rate Target Zones with Central Parity Realignments
17 Pages Posted: 17 Jun 2015
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On the Sustainability of Exchange Rate Target Zones with Central Parity Realignments
Number of pages: 17
Posted: 17 Jun 2015
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On the Sustainability of Exchange Rate Target Zones with Central Parity Realignments
Globalization and Monetary Policy Institute Working Paper No. 243
Number of pages: 17
Posted: 17 Aug 2015
Last Revised: 08 Jul 2017
Downloads
33
Date Written: June 14, 2015
Abstract
I show that parity realignments alone do not suffice to ensure the long-run sustainability of an exchange rate target zone with imperfect credibility due to the gambler's ruin problem. However, low credibility and frequent realignments can destabilize the exchange rate.
Keywords: Nominal Exchange Rate, Target Zones, Discrete Intervention, Central Parity Realignment, Imperfect Credibility
JEL Classification: E58, F31, F33, F41, G15
Suggested Citation: Suggested Citation
Martinez-Garcia, Enrique, On the Sustainability of Exchange Rate Target Zones with Central Parity Realignments (June 14, 2015). Available at SSRN: https://ssrn.com/abstract=2619389 or http://dx.doi.org/10.2139/ssrn.2619389
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