Download or read book On the Estimation of Fundamental Divergence and Implied Measures of Credibility in Exchange Rate Target Zones written by Giampiero M. Gallo and published by . This book was released on 1995 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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:
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.
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 with total page 60 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.
Download or read book Currency Target Zones as Mirrored Options written by Sandro Claudio Lera and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A new way of modeling the dynamics of an exchange rate target zone is presented. In the presence of a single upper (resp. lower) target boundary, the exchange rate is precisely represented as the sum of a free float and a short (resp. long) position in a call (resp. put) option with strike price at the boundary. To model a target zone (with two boundaries), a natural approach consists in describing the exchange rate dynamics as the combination of the two, namely the sum of free float together with a long position in a put written on the lower boundary and a short position in a call option written on the upper boundary, respectively. We show that this first order approximation leads to significant mispricing (as much as 20%) and must be iterated, leading to an infinite sequence of compounded 'mirrored' option prices. We analyze basic properties of such mirrored nested options analytically, describe how to calculate them numerically, and show why it is crucial to take into account higher order corrections in realistic target zones. We argue that this analogy to option prices allows for conceptually simple generalizations that describe different target zone arrangements. We apply our methodology to the estimation of the fundamental value of the Hong Kong dollar that is hidden by the target zone peg to the US dollar. We also estimate the implied maturity and explain how this parameter serves as direct proxy for target zone credibility.
Download or read book The Simplest Test of Target Zone Credibility written by Lars E. O. Svensson and published by . This book was released on 1991 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under the additional assumption of uncovered interest rate parity, an equivalent test is whether expected future exchange rates are outside the exchange rate band. In addition, the expected future exchange rates are used to give an estimate of the probability of future devaluations.
Download or read book Realignment Risk and Currency Option Pricing in Target Zones written by Bernard Dumas and published by . This book was released on 1993 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends the Krugman target zone model by including a realignment mechanism. Various properties of that realignment mechanism are discussed. The movement of the exchange rate is governed both by a Wiener process on fundamental and by a Poisson jump process with endogenous realignment size. The realignment mechanism is such that (except in cases where a speculative attack occurs) no jump in fundamental is needed to accompany the jump in the exchange rate. A risk neutral valuation of currency options is constructed. Some properties of option values under realignment risk are illustrated by numerical results.
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.
Download or read book Rational Speculative Bubbles in an Exchange Rate Target Zone written by Willem H. Buiter and published by . This book was released on 1990 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent theory of exchange rate dynamics within a target zone holds that exchange rates under a currency bard are less responsive to fundamental shocks than exchange rates under a free float, provided that the intervention rules of the Central Bank(s) are common knowledge. These results are derived after having assumed a priori that excess volatility due to rational bubbles does not occur in the foreign exchange market. In this paper we consider instead a setup in which the existence of speculative behavior is a datum the Central Bank has to deal with. We show that the defense of the target zone in the presence of bubbles is viable if the Central Bank accommodates speculative attacks when the latter are consistent with the survival of the target zone itself and expectations are self-fulfilling. These results hold for a large class of exogenous and fundamental-dependent bubble processes. We show that the instantaneous volatility of exchange rates within a bard is not necessarily less than the volatility under free float and analyze the implications for interest rate differential dynamics.
Download or read book On the Evolution of Credibility and Flexible Exchange Rate Target Zones written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The Business School of the City University of London presents the Financial Econometrics Research Centre (FERC) working paper entitled "On the Evolution of Credibility and Flexible Exchange Rate Target Zones," by Renzo G. Avesani, Giampiero M. Gallo, and Mark Salmon. The paper was published October 31, 1999 and is in PDF format. The authors discuss the management of exchange rate target zones. These target zones may be considered a signalling game between monetary authories and the financial markets.
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:
Download or read book Exchange Rate Economics written by Ronald MacDonald and published by Routledge. This book was released on 2005 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt: ''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""
Download or read book Target Zones Big and Small written by Francisco Delgado and published by . This book was released on 1991 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book On the Sustainability of Exchange Rate Target Zones with Central Parity Realignments written by Enrique Martínez-García and published by . This book was released on 2017 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that parity realignments alone do not suffice to ensure the long-run sustainability of an exchange rate target zone with imperfect credibility due to the gambler's ruin problem. However, low credibility and frequent realignments can destabilize the exchange rate.
Download or read book A Target Zone Model with Expected Trend Revisions written by Patrick Georges and published by Department of Economics, University of Ottawa = Dép. de science économique, Université d'Ottawa. This book was released on 1995 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Does the Credibility of the Exchange Rate Depend on the Width of the Target Zone written by Tore Anderé Lysebo and published by . This book was released on 1992 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Determinants of the Implied Shadow Exchange Rates from a Target Zone written by Jesper Rangvid and published by . This book was released on 1998 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt:
