On the Sustainability of Exchange Rate Target Zones with Central Parity Realignments
17 Pages Posted: 17 Aug 2015 Last revised: 8 Jul 2017
Date Written: June, 2015
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