Soft Exchange Rate Bands and Speculative Attacks: Theory, and Evidence from the Erm Since August 1993

39 Pages Posted: 15 Feb 2006

See all articles by Leonardo Bartolini

Leonardo Bartolini

affiliation not provided to SSRN (deceased)

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased

Date Written: November 1998

Abstract

We present a model of a "soft" exchange rate target zone and interpret it as a stylized description of the post-August 1993 ERM. Our central bank targets a moving average of the current and past exchange rates, rather than the exchange rate's current level, thus allowing the rate to move within wide margins in the short run, but within narrow margins in the long run. For realistic parameters, soft target zones are significantly less vulnerable to speculative attacks than "hard" target zones. These predictions are consistent with the ERM's experience and the abatement of speculative pressure in European markets since the bands' widening in 1993.

Keywords: Exchange rate target zones, speculative attacks

JEL Classification: F31, F33, C15

Suggested Citation

Bartolini (deceased), Leonardo and Prati, Alessandro, Soft Exchange Rate Bands and Speculative Attacks: Theory, and Evidence from the Erm Since August 1993 (November 1998). IMF Working Paper No. 98/156, FRB of New York Staff Report No. 43, Available at SSRN: https://ssrn.com/abstract=882737

Leonardo Bartolini (deceased) (Contact Author)

affiliation not provided to SSRN (deceased)

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
60
Abstract Views
775
Rank
643,430
PlumX Metrics