The Linkage between Speculative Attack and Target Zone Models of Exchange Rates

24 Pages Posted: 15 Feb 2006

See all articles by Robert P. Flood

Robert P. Flood

International Monetary Fund (IMF) - Research Department; CENTRUM Business School; National Bureau of Economic Research (NBER)

Peter M. Garber

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: April 6, 1989

Abstract

In this paper we generalize the target zone exchange rate as model formalized by Krugman (1988b). The main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the smooth pasting condition often invoked as a terminal condition. We aim to unify these two literatures by showing that the solution concepts in both are identical.

JEL Classification: 430

Suggested Citation

Flood, Robert P. and Garber, Peter M., The Linkage between Speculative Attack and Target Zone Models of Exchange Rates (April 6, 1989). IMF Working Paper No. 89/30, Available at SSRN: https://ssrn.com/abstract=884701

Robert P. Flood (Contact Author)

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

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CENTRUM Business School

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National Bureau of Economic Research (NBER)

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Peter M. Garber

Brown University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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United States

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