Download this Paper Open PDF in Browser

Target Zone Policy - A 20th Century Perspective

Posted: 21 Jul 2007 Last revised: 31 Jan 2011

Rupert Macey-Dare

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

Date Written: Summer 2007


This paper reviews some of the policy considerations behind modern target zone theory, pre-EMU. Topics covered include: domestic output boosting and switching; insulation and transmission of macroeconomic shocks; relationship with other exchange rate regimes; optimal currency areas; "rules versus discretion" and anti-inflationary discipline; reputation and signalling; international policy co-ordination and convergence; economic signal extraction; domestic behavioural change mechanisms and Lucas-critique arguments; use of the exchange rate as a nominal anchor; excess exchange rate volatility; target zones, speculation and contagious speculative attacks; credibility and realignment expectations; the Walters critique and Soros' approach; exchange rate bubble bursting potential; equilibrium exchange rates and "FEERS", various exchange rate blueprints and assignment rules including Williamson and Miller's "Revised Blueprint" and Boughton's "Reverse Assignment"; Bretton Woods, Louvre Accord and EMS/ERM experience.

Keywords: exchange rate, target zone, EMS, ERM, EMU

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

Suggested Citation

Macey-Dare, Rupert, Target Zone Policy - A 20th Century Perspective (Summer 2007). Available at SSRN: or

Rupert Macey-Dare (Contact Author)

University of Oxford - Saint Cross College ( email )

Saint Giles
United Kingdom

Middle Temple

Middle Temple Lane
London, EC4Y 9AT
United Kingdom

Minerva Chambers

United Kingdom

Paper statistics

Abstract Views