Campa, Jose Manuel; Chang, P H Kevin - In: American Economic Review 86 (1996) 4, pp. 726-40
This paper introduces two arbitrage-based tests of target-zone credibility using a new data source, exchange-rate mechanism cross-rate options. Using daily option prices from September 1991 to August 1994, the authors assess the credibility of the pound-mark and mark-lira target zones that...