Autori
Gallo, Giampiero M.
Avesani, Renzo G.
Salmon, Mark

Titolo
On the evolution of credibility and flexible exchange rate target zones
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1994 - Fascicolo: 46 - Pagina iniziale: 1 - Pagina finale: 40

This paper considers a new approach to the optimal management and analysis of exchange rate target zones by regarding the operation of a target zone as a dynamic signalling game between the monetary authorities and the financial markets. A Sequential Open Loop (Feedback) policy of sterilised intervention is proposed that depends critically on the evolution of the policy maker’s credibility as opposed to the open loop precommitment strategy that has been implemented, for instance, in the Exchange Rate Mechanism of the EMS and in the Bretton Woods system. The width of the target zone and re-alignments are in turn determined optimally given the policy maker’s credibility. A commitment to this form of flexible target zone is shown through simulation to provide substantial stabilisation for the exchange rate while retaining considerable flexibility and robustness in response to shocks.



Testo completo: http://hdl.handle.net/1814/525

Esportazione dati in Refworks (solo per utenti abilitati)