This paper develops a simple econometric procedure for estimating expected exchange rate under target zones. We employ the linear projection methodology to make predictions without relying on any prior structural or distributional assumptions, and at the same time demonstrate that such a...

The stability of the EMS depends crucially on realignment expectations of the market participants. In this paper we discuss how to measure such expectations and how to relate them to economic fundamentals, central bank reputation, and institutional arrangements of the EMS. We find the following...