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Tekijä: | Svensson, L. E. O. |
Otsikko: | Target zones and interest rate variability |
Lehti: | Journal of International Economics
1991 : AUG, VOL. 31:1-2, p. 27-54 |
Asiasana: | EXCHANGE RATES INTEREST RATES FINANCIAL MODELS FINANCIAL ANALYSIS |
Kieli: | eng |
Tiivistelmä: | It is shown that for small exchange rate bands the interest rate differential's asymptotic (unconditional) variability is increasing in the width of the band. For large bands, the interest rate differential's asymptotic variability is slowly decreasing in the width of the band. The interest rate differential's instantaneous (conditional) variability is decreasing in the width of the band. A narrow target zone differs from a completely fixed exchange rate regime in that the interest rate differential's instantaneous standard deviation is high and even increases when the zone narrows. Some obvious problems and limitations with this target zone model are mentioned. |
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