Working Paper

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.

JEL Classification: F33; F41; F31; E58; G15;

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2015-06-01

Number: 243

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.