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An Interpretation of Recent Research on Exchange Rate Target Zones

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  • Lars E. O. Svensson

Abstract

How do exchange rate bands work compared to completely fixed rates (between realignments); or, more precisely, what are the dynamics of exchange rates, interest rates, and central bank interventions within exchange rate bands? Does the difference between bands and completely fixed exchange rates matter, and if so, which of the two arrangements is best; or, more precisely, what are the tradeoffs that determine the optimal bandwidth? This article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones, with emphasis on main ideas and results and without technical detail.

Suggested Citation

  • Lars E. O. Svensson, 1992. "An Interpretation of Recent Research on Exchange Rate Target Zones," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 119-144, Fall.
    • Handle: RePEc:aea:jecper:v:6:y:1992:i:4:p:119-44
    Note: DOI: 10.1257/jep.6.4.119
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.6.4.119
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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