Target Zone Primer

Posted: 13 Jun 2007 Last revised: 31 Jan 2011

Rupert Macey-Dare

University of Oxford - Saint Cross College; Middle Temple; Minerva Chambers

Date Written: Summer 2007

Abstract

This paper surveys methods and models used in the target zone literature. The following areas are covered: rationale for stochastic modelling; Ito's Lemma and stochastic differential equations; the basic target zone model; the flexible price monetary model; simple real exchange rate zones; sticky-price target zones; Uhlenbeck-Ornstein target zone model; empirical evidence on target zones; structural exchange rate models; purchasing power parity; expectations; government intervention policy; target zone realignments; learning and credibility; interest rate effects; linkages with other exchange rate phenomena; speculative attacks, stochastic process switching; rational bubbles; gold standard paradoxes and target zone optimization.

Keywords: exchange rate, target zone, zones, Ito, stochastic, purchasing power parity, expectations, intervention, realignment, learning, credibility, speculative attack, process switching, bubbles, gold standard paradox

JEL Classification: E43, E44, E47, F31, F47, G12, G15, G18

Suggested Citation

Macey-Dare, Rupert, Target Zone Primer (Summer 2007). Available at SSRN: https://ssrn.com/abstract=985266 or http://dx.doi.org/10.2139/ssrn.985266

Rupert Macey-Dare (Contact Author)

University of Oxford - Saint Cross College ( email )

Saint Giles
Oxford
United Kingdom

Middle Temple

Middle Temple Lane
London, EC4Y 9AT
United Kingdom

Minerva Chambers

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
125
rank
205,751
Abstract Views
619
PlumX