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Limited Reserves and the Optimal Width of an Exchange Rate Target zone.

Broome, Simom J. (2003) Limited Reserves and the Optimal Width of an Exchange Rate Target zone. UNSPECIFIED. (Unpublished)

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Abstract

This paper analyses the stabilising properties of an exchange rate target zone when the stock of available reserves is limited. In these circumstances it is reasonable to suppose that the optimal bandwidth is affected by the expected lifetime of the zone. Our analysis uses Sutherland's (1995) target zone model to assess the importance of the expected lifetime in determining the optimal width of the zone. We find that the expected lifetime tends to widen the optimal bandwidth considerably but unless the stock of initial reserves is small and/or the fundamentals drift large, the extra lifetime bought is small in percentage terms.

Item Type: Other
Additional Information: N122/08/03
Keywords: Stabilisation policy, exchange rate crises, optimal target zones
Subjects: Social Sciences > Economics
Item ID: 116
Depositing User: Ms Sandra Doherty
Date Deposited: 23 Oct 2003
Refereed: No
URI:

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