On the sustainability of exchange rate target zones with central parity realignments
Abstract: 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.
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Provider: Federal Reserve Bank of Dallas
Part of Series: Globalization Institute Working Papers
Publication Date: 2015-06-01
Pages: 17 pages
Note: Published as: Martínez-García, Enrique (2015), "On the Sustainability of Exchange Rate Target Zones with Central Parity Realignments," Economics Letters 134: 86-89.