On the Sustainability of Exchange Rate Target Zones with Central Parity Realignments
17 Pages Posted: 17 Aug 2015 Last revised: 8 Jul 2017
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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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Date Written: June, 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.
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, 2015). Globalization and Monetary Policy Institute Working Paper No. 243, Available at SSRN: https://ssrn.com/abstract=2643969 or http://dx.doi.org/10.24149/gwp243
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