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On The Credibility Issue Of Exchange Rate Target Zones
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Book Synopsis On the credibility issue of exchange rate target zones by : Matthias Rau-Göhring
Download or read book On the credibility issue of exchange rate target zones written by Matthias Rau-Göhring and published by diplom.de. This book was released on 2003-04-29 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Zusammenfassung: Währungskrisen, wie die des Europäischen Währungssystems (EWS) 1992, können noch immer nur unzureichend vorausgesagt werden. Es wird jedoch anerkannt, dass die Glaubwürdigkeit eines jeden Währungssystems ausschließlich endogen bestimmt wird, d.h. durch Interaktion der einzelnen Akteure an den Wechselkursmärkten. Die vorliegende Arbeit untersucht, ob ein bestimmtes Glaubwürdigkeitsmaß, eingeführt von Avesani, Gallo und Salmon (1995), geeignet ist, die große EWS Krise 1992 vorauszusagen. Dabei handelt es sich um ein dynamisches Spiel, in dem die beiden Akteure (Zentralbank und Finanzmarkt) miteinander interagieren und damit die Glaubwürdigkeit des Systems aushandeln . Es wird gezeigt, dass o.g. Glaubwürdigkeitsmaß ein geeigneter Indikator für Währungskrisen darstellt, was empirisch anhand des französischen Francs, der italienischen Lira und des niederländischen Guldens nachgewiesen wird. Introduction: The objective of the present study is to present the literature of exchange rate target zones and to explore empirically the Avesani-Gallo-Salmon credibility measure for selected currencies belonging to the Exchange-Rate Mechanism (ERM) of the European Monetary System (EMS). In the past decade the empirical literature on real world target zones mushroomed considerably, but still, its overall significance in explaining strains in the relevant foreign exchange markets remains relatively low. In this context, I will explore whether the Avesani-Gallo-Salmon (1995) credibility measure demonstrates more power than earlier studies in the analysis of the 1992/3 EMS crisis. It is not my intention to pursue a normative analysis whether flexible or fixed exchange rates or intermediate regimes are superior to one another in terms of their economic implications. This question is beyond the scope of my analysis.1 Given that target zones are applied frequently in the real world, I purely want to figure out, whether their application is sensible on grounds of a firm commitment of the policy-makers. Exchange rate bands have been discussed widely after the breakdown of the Bretton Woods System in 1973. Although experiences with the fixed exchange rate regime were disappointing in the 1960s, increased volatility and/or overshooting of the exchange rates in the 1970s let economists doubt the famous argument by Friedman (1953) that speculation would stabilize exchange rate movements in the floating system. McKinnon (1976) reckoned that [...]
Book Synopsis The Simplest Test of Target Zone Credibility by : International Monetary Fund
Download or read book The Simplest Test of Target Zone Credibility written by International Monetary Fund and published by International Monetary Fund. This book was released on 1990-11-01 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under the assumption of no arbitrage exchange rate target zone credibility is tested by whether domestic interest rates fall within “rate-of-return bands” between the maximum and minimum home-currency rate of return on a foreign investment absent a devaluation. Under the assumption of uncovered interest rate parity credibility is tested by whether expected future exchange rates fall within the exchange rate band. These tests are applied on data about the Swedish target zone during January 1987-August 1990.
Book Synopsis On the Evolution of Credibility and Flexible Exchange Rate Target Zones by : Renzo G. Avesani
Download or read book On the Evolution of Credibility and Flexible Exchange Rate Target Zones written by Renzo G. Avesani and published by . This book was released on 1994 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Assessing Target Zone Credibility by : Mr.Lars E. O. Svensson
Download or read book Assessing Target Zone Credibility written by Mr.Lars E. O. Svensson and published by International Monetary Fund. This book was released on 1991-10-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Target Zones and Forward Rates in a Model with Repeated Realignments by : Mr.Leonardo Bartolini
Download or read book Target Zones and Forward Rates in a Model with Repeated Realignments written by Mr.Leonardo Bartolini and published by International Monetary Fund. This book was released on 1992-03-01 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the implications of the imperfect credibility of an exchange rate target zone on the term structure of forward premia. The relationship between spot and forward exchange rates of different maturities reflects the possibility of repeated realignments of the exchange rate band. The credibility of the commitment to the target zone implicit in forward market data can be extracted by estimating the model. Application to French/German data indicates that the model is capable of matching observed patterns of interest rate differentials during the EMS, while yielding estimates of the credibility parameters that accord with the experience of the FF/DM exchange rate during the 1980s.
Book Synopsis Target Zones and Exchange Rates by : Geert Bekaert
Download or read book Target Zones and Exchange Rates written by Geert Bekaert and published by . This book was released on 1996 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we develop an empirical model of exchange rates in a target zone. The model is general enough to nest most theoretical and empirical models in the existing literature. We find evidence of two types of jumps in exchange rates. Realignment jumps are those that are associated with the periodic realignments of the target zone and within-the-band jumps are those that can be accommodated within the current target zone. The exchange rate may jump outside the current target zone band, in the case of a realignment, but when no jump occurs the target zone is credible (there is zero probability of a realignment) and the exchange rate must stay within the band. We incorporate jumps, in general, by conditioning the distribution of exchange rate changes on a jump variable where the probability and size of a jump vary over time as a function of financial and macroeconomic variables. With this more general model, we revisit the empirical evidence from the European Monetary System regarding the conditional distribution of exchange rate changes, the credibility of the system, and the size of the foreign exchange risk premia. In contrast to some previous findings, we conclude that the FF/DM rate exhibits considerable non-linearities, realignments are predictable and the credibility of the system did not increase after 1987. Moreover, our model implies that the foreign exchange risk premium becomes large during speculative crises. A comparison with the Deutschemark/Dollar rate suggests that an explicit target zone does have a noticeable effect on the time-series behavior of exchange rates.
Book Synopsis The Relationship Between Different Concepts of Credibility in a Simple Exchange Rate Target Zone Model by : Staffan Ringbom
Download or read book The Relationship Between Different Concepts of Credibility in a Simple Exchange Rate Target Zone Model written by Staffan Ringbom and published by . This book was released on 1995 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis An Empirical Exploration of Exchange Rate Target-Zones by : Mr.Robert P. Flood
Download or read book An Empirical Exploration of Exchange Rate Target-Zones written by Mr.Robert P. Flood and published by . This book was released on 1991-02 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the context of a flexible-price monetary exchange rate model and the assumption of uncovered interest parity, we obtain a measure of the fundamental determinant of exchange rates. Daily data for the European Monetary System are used to explore the importance of nonlinearities in the relationship between the exchange rates and fundamentals. Many implications of existing “target-zone” exchange rate models are tested; little support is found for existing nonlinear models of limited exchange rate flexibility.
Book Synopsis Credibility and Exchange Rate Management in Developing Countries by : Pierre-Richard Agénor
Download or read book Credibility and Exchange Rate Management in Developing Countries written by Pierre-Richard Agénor and published by International Monetary Fund. This book was released on 1991-09-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines the role of credibility in the conduct of exchange rate policy in developing countries, The analysis is based on a model in which policymakers are concerned about inflation and external competitiveness. Price setters in the nontraded goods sector of the economy adjust prices in reaction to anticipated fluctuations in the domestic price of tradable goods. This type of model is showm to generate a “devaluation bias” which undermines the credibility of a fixed exchange rate. The effect of reputational factors, signaling considerations, and joining a currency union as possible solutions to this bias is examined.
Book Synopsis Stochastic Process Switching and Intervention in Exchange Rate Target Zones by : Axel A. Weber
Download or read book Stochastic Process Switching and Intervention in Exchange Rate Target Zones written by Axel A. Weber and published by . This book was released on 1991 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Exchange Rate Premia and the Credibility of the Crawling Target Zone in Hungary by : Zsolt Darvas
Download or read book Exchange Rate Premia and the Credibility of the Crawling Target Zone in Hungary written by Zsolt Darvas and published by . This book was released on 1996 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Target Zones and Interest Rate Variability by : Mr.Lars E. O. Svensson
Download or read book Target Zones and Interest Rate Variability written by Mr.Lars E. O. Svensson and published by International Monetary Fund. This book was released on 1990-04-01 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The trade-off between interest rate variability and the width of an exchange rate target zone is examined, using the regulated Brownian motion model of target zones. The interest rate differential’s asymptotic (unconditional) variability is increasing in the exchange rate band for narrow bands; whereas it is slowly decreasing for wide bands. The interest rate differential’s instantaneous (conditional) variability is decreasing in the exchange rate band. The model is extended to include a realignment/devaluation risk, as well as an endogenous exchange rate risk premium. The risk premium is small for reasonable parameter values.
Book Synopsis Arbitrage-based Tests of Target Zone Credibility by : José Campa
Download or read book Arbitrage-based Tests of Target Zone Credibility written by José Campa and published by . This book was released on 1995 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Nature of Commitment in Flexible Target Zones and the Measurement of Credibility by : Renzo G. Avesani
Download or read book On the Nature of Commitment in Flexible Target Zones and the Measurement of Credibility written by Renzo G. Avesani and published by . This book was released on 1995 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Assessing Target Zone Credibility by : Lars E.O. Svensson
Download or read book Assessing Target Zone Credibility written by Lars E.O. Svensson and published by . This book was released on 1994 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 ERM bands display mean reversion rather than random walk (unit root) behavior. The adjustment is essential since expected rates of depreciation within the band are usually of about the same magnitude as interest rate differentials.
Book Synopsis Exchange Rate Economics by : Ronald MacDonald
Download or read book Exchange Rate Economics written by Ronald MacDonald and published by Routledge. This book was released on 2007-03-12 with total page 465 pages. Available in PDF, EPUB and Kindle. Book excerpt: First published in 2007. Exchange Rate Economics: Theories and Evidence is the second edition of Floating Exchange Rates: Theories and Evidence, and builds on the successful content and structure of the previous edition, but has been comprehensively updated and expanded to include additional literature on the determination of both fixed and floating exchange rates. Core topics covered include: • the purchasing power parity hypothesis and the PPP puzzle; • the monetary and portfolio-balance approaches to exchange rates; • the new open economy macroeconomics approach to exchange rates; and • the determination of exchange rates in target zone models and speculative attack models. Exchange Rate Economics: Theories and Evidence also includes extensive discussion of recent econometric work on exchange rates with a particular focus on equilibrium exchange rates and measuring exchange rate misalignment, as well as discussion on the non-fundamentals-based approaches to exchange rate behaviour, such as the market microstructure approach. The book will appeal to academics and postgraduate students with an interest in all aspects of international finance and will also be of interest to practitioners concerned with issues relating to equilibrium exchange rates and the forecastability of currencies in terms of macroeconomic fundamentals.
Book Synopsis Target Zones and Forward Rates in a Model with Repeated Realignments by : Gordon M. Bodnar
Download or read book Target Zones and Forward Rates in a Model with Repeated Realignments written by Gordon M. Bodnar and published by . This book was released on 2006 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the implications of the imperfect credibility of an exchange rate target zone on the terra structure of forward premia. The relationship between spot and forward exchange rates of different maturities reflects the possibility of repeated realignments of the exchange rate band. The credibility of the commitment to the target zone implicit in forward market data can be extracted by estimating the model. Application to French/German data indicates that the model is capable of matching observed patterns of interest rate differentials during the EMS, while yielding estimates of the credibility parameters that accord with the experience of the FF/DM exchange rate during the 1980s.
