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Under the assumption of no arbitrage exchange rate target zone credibility is tested by whether domestic interest rates fall within quot;rate-of-return bandsquot; between the maximum and minimum home-currency rate of return on a foreign investment absent a devaluation. Under the assumption of...
Persistent link: https://www.econbiz.de/10012780978
The paper presents estimates of devaluation expectations for six EMS currencies relative to the Deutsche mark, for the period March 1979-May 1990. The estimation method is simple and operational, and consistently generates sensible results. The estimates are constructed by the adjusting interest...
Persistent link: https://www.econbiz.de/10012781010
In this paper it is argued that the willingness of debtors to make external debt-service payments reflects, in part, their inability to credibly and permanently suspend debt service. The benefits of a credible debt-service suspension would include increased private investment. But this would, in...
Persistent link: https://www.econbiz.de/10012781319
The trade-off between interest rate variability and the width of an exchange rate target zone is examined, using the regulated Brownian motion model of target zones. The interest rate differential`s asymptotic (unconditional) variability is increasing in the exchange rate band for narrow bands;...
Persistent link: https://www.econbiz.de/10012781342
The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden 1992-1994 as an example. The forward rates are interpreted as indicating market expectations of the time-path of future interest rates, future inflation rates, and future currency depreciation rates....
Persistent link: https://www.econbiz.de/10012781618