Exchange Rate Targets and Currency Bands

This volume examines the intersection between a new analytical approach and a real economic problem.

Paul Krugman (Edited by), Marcus Miller (Edited by)

9780521435260, Cambridge University Press

Paperback, published 22 October 1992

272 pages
22.9 x 15.2 x 1.9 cm, 0.435 kg

"In conclusion, the volume is an accurate picture of the recent (1990) state of the 'target zone' literature and will be useful to economists desirous of keeping abreast...." Stanley W. Black, Journal of Money, Credit, and Banking

Research programmes in economics usually emerge from the intersection between a new analytical approach and a real economic problem. In the last few years, such a programme has emerged in international monetary economics, which is underpinned by a theoretical framework grounded in stochastic calculus and the increasing prominence in the real world of the international monetary arrangements under which national monetary authorities attempt to keep exchange rates within bands or 'target zones'. This new programme of research also covers switches in exchange rate regimes. This volume from the Centre for economic Policy Research and the National Bureau of Economic Research includes contributions - as authors or discussants - from most of the active participants in the development of this new field, and will serve as a useful introduction and basic text for this new research programme. It opens with an account of the basic economic model of a currency band developed by Paul Krugman, which is followed by two papers that extend this approach. Other chapters study the regime switches entailed in Britain's return to the gold standard in 1925 and the preannounced entry of a floating currency into a band such as the EMS. Essays on sustainability and realignment consider the possible outcomes of speculative attacks on such bands, and the volume ends with a paper on econometric testing of models of this type.

1. Editors' introduction Paul Krugman, and Marcus Miller
Part I. Modelling Currency Bands: 2. Exchange rates in a currency band: a sketch of the new approach Paul Krugman
Part II. Currency Bands: Extending the Model: 3. The linkage between speculative attack and target zone models of exchange rates: some extended results Robert P. Flood, and Peter M. Garber
Discussion Paul Weller
4. Target zones, broad and narrow Francisco Delgado, and Bernard Dumas
Discussion Leonardo Bartolini
Part III. Regime Shifts: The Return to Gold and Ems Entry: 5. Stochastic process switching: some simple solutions
6. Entering a preannounced currency band Masaki Ichikawa, Marcus Miller, and Alan Sutherland
7. Britain's return to gold and entry into the EMS: joining conditions and credibility Marcus Miller, and Alan Sutherland
Discussion Gregor W. Smith
Part IV. Limited Reserves and Sustainability: 8. Speculative attacks on target zones Paul Krugman, and Julio Rotemberg
Discussion Bernard Dumas
9. Anomalous speculative attacks on fixed exchange rate regimes: possible resolutions of the 'gold standard paradox' Willem H. Buiter, and Vittorio U. Grilli
Discussion Maurice Obstfeld
10. Sustainable intervention policies and exchange rate dynamics Giuseppe Bertola, and Ricardo J. Caballero
Discussion Lars E. O. Svensson
Part V. Estimation and Testing: 11. Estimation and testing in models of exchange rate target zones and process switching Gregor W. Smith, and Michael G. Spencer
Discussion Hossein Samiei.

Subject Areas: Monetary economics [KCBM]