We present a model of a “soft” exchange rate target zone and interpret it as a stylized description of the post-August 1993 ERM. Our central bank targets a moving average of the current and past exchange rates, rather than the exchange rate’s current level, thus allowing the rate to move...

The Eurosystem and the U.S. Federal Reserve System follow quite different approaches to the execution of monetary policy. The former institution adopts a "hands-off" approach that largely delegates to depository institutions the task of stabilizing their own liquidity at high frequency. The...

We present a model of a quot;softquot; exchange rate target zone and interpret it as a stylized description of the post-August 1993 ERM. Our central bank targets a moving average of the current and past exchange rates, rather than the exchange rate's current level, thus allowing the rate to move...