Working Paper: NBER ID: w3601
Authors: Francisco Delgado; Bernard Dumas
Abstract: Under different assumptions about the underlying monetary shocks, we study target zones of various widths and the effect they have on variables like the interest differential. The stochastic disturbances assumed are successively a non-zero mean random walk and a mean reverting process. The latter is used to incorporate the "leaning against the wind" policy (intrainarginal intervention) which is prevalent in the EMS.
Keywords: target zones; exchange rates; interest rate differential
JEL Codes: E58; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| target zone width (R12) | interest rate differential (E43) |
| monetary shocks (E39) | interest rate differential (E43) |
| target zone width (R12) | macroeconomic outcomes (E66) |
| intervention strategies (I24) | interest rate differential (E43) |
| target zone width (R12) | monetary shocks (E39) |