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,...

Krugman (1991)'s target zone model has become the reference of a large part of this literature. Despite its simplicity and elegance, empirical evidence has been lacking. Deriving from Krugman's model analytical expressions for the conditional volatility and density distribution close to the...