A credible target zone exchange rate regime with a given exchange rate band implies bounds on the amount of depreciation and appreciation of the domestic currency. This implies, for given foreign interest rates, bounds on the domestic-currency rate of return on foreign investment: a...

The first known experiment with an exchange rate band took place in Austria-Hungary between 1896 and 1914. The rationale for introducing this policy rested on precisely those intuitions that the modern literature has emphasized: the band was designed to secure both exchange rate stability and...

We study optimal trading in an Almgren-Chriss model with running and terminal inventory costs and general predictive signals about price changes. As a special case, this allows to treat optimal liquidation in “target zone models”: asset prices with a reflecting boundary enforced by...

This paper empirically investigates the credibility of the Brazilian exchange rate target zone implemented from March 10, 1995 to January 15, 1999 using the drift-adjustment method developed by Bertola and Svensson (1993). The model estimation does not accept the perfect credibility hypothesis,...

This paper empirically investigates the credibility of the Brazilian exchange rate target zone implemented from March 10, 1995 to January 15, 1999 using the drift-adjustment method developed by Bertola and Svensson (1993). The model estimation does not accept the perfect credibility hypothesis,...

The Central Banks around the world are commonly responsible for their exchange rate policies. During the 1990s it has been clear that the controllability of the exchange rates by the central banks' interventions is limited (McKinnon, 1993). When the underlying monetary reserves are bounded,...

In the revised monetary policy strategy of the European Central Bank (ECB), "price stability is best maintained by aiming for two per cent inflation over the medium term", with "symmetric commitment" to this target. "Symmetry means that the Governing Council considers negative and positive...