Abstract

https://ssrn.com/abstract=885077
 
 

Citations (20)



 


 



Assessing Target Zone Credibility: Mean Reversion and Devaluation Expectations in the EMS


Lars E. O. Svensson


Stockholm School of Economics; Stockholm University - Institute for International Economic Studies (IIES); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

October 1991

IMF Working Paper No. 91/96

Abstract:     
The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutsche mark, for the period March 1979-May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by the adjusting interest rate differentials by subtracting estimated expected rates of depreciation within the exchange rate band. The adjustment is nontrivial because exchange rates within the ERM bands display mean reversion rather than random walk (unit root) behavior. The adjustment is essential since the expected rates of depreciation are usually of about the same magnitude as the interest rate differentials.

Number of Pages in PDF File: 35

JEL Classification: F31, F33


Open PDF in Browser Download This Paper

Date posted: February 15, 2006  

Suggested Citation

Svensson, Lars E. O., Assessing Target Zone Credibility: Mean Reversion and Devaluation Expectations in the EMS (October 1991). IMF Working Paper No. 91/96. Available at SSRN: https://ssrn.com/abstract=885077

Contact Information

Lars E.O. Svensson (Contact Author)
Stockholm School of Economics ( email )
PO Box 6501
Stockholm, 11383
Sweden
HOME PAGE: http://larseosvensson.se
Stockholm University - Institute for International Economic Studies (IIES) ( email )
Stockholm, SE-10691
Sweden
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 543
Downloads: 100
Download Rank: 210,031
Citations:  20