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A target zone model with the terminal condition of joining a currency area

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  • Viktors Ajevskis

Abstract

This study aims to generalize the Krugman target zone model for the case of terminal condition of joining a currency area. Using the terminal condition and the 'smooth pasting conditions', both analytical and numerical solutions of the problem are obtained. The proposed model is more adequate than the Krugman one when the moment of joining currency area approaches. The properties of the model highlight that monetary authorities have some degree of monetary independence until the moment of entering a currency zone. The model's outcomes are consistent with dynamic properties of the exchange rate time series of the European countries that entered euro zone in January 1999.

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  • Viktors Ajevskis, 2011. "A target zone model with the terminal condition of joining a currency area," Applied Economics Letters, Taylor & Francis Journals, vol. 18(13), pages 1273-1278.
    • Handle: RePEc:taf:apeclt:v:18:y:2011:i:13:p:1273-1278
    DOI: 10.1080/13504851.2010.534053
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    References listed on IDEAS

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    1. Lundbergh, Stefan & Terasvirta, Timo, 2006. "A time series model for an exchange rate in a target zone with applications," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 579-609.
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    4. Dumas, Bernard, 1991. "Super contact and related optimality conditions," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 675-685, October.
    5. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 669-682.
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    Cited by:

    1. Markus Hertrich, 2022. "Foreign exchange interventions under a minimum exchange rate regime and the Swiss franc," Review of International Economics, Wiley Blackwell, vol. 30(2), pages 450-489, May.
    2. Olena Denysiuk & Ihor Svitlyshyn & Iryna Tsaruk & Olga Vikarchuk & Andrii Dankevych, 2022. "Diversification in the enterprises? activities for sustainable development in the agricultural sector," RIVISTA DI STUDI SULLA SOSTENIBILITA', FrancoAngeli Editore, vol. 0(2), pages 85-102.
    3. Vyacheslav Shebanin & Iurii Kormyshkin & Georgiy Reshetilov & Iryna Allakhverdiyeva & Valentyna Umanska, 2022. "Sustainable development of the socio-economic security system of the region based on closed cycle technologies," RIVISTA DI STUDI SULLA SOSTENIBILITA', FrancoAngeli Editore, vol. 0(2), pages 271-288.
    4. Ajevskis, Viktors, 2015. "An exchange rate target zone model with a terminal condition and mean-reverting fundamentals," MPRA Paper 65078, University Library of Munich, Germany.
    5. Petro Dikhtiievskyi & Nataliia Zadyraka & Volodymyr Pashinskyi & Liudmyla Chupryna & Volodymyr Dikhtiievskyi, 2022. "Legal regulation of access to public information on the state of use of natural resources," RIVISTA DI STUDI SULLA SOSTENIBILITA', FrancoAngeli Editore, vol. 0(2), pages 103-123.
    6. Arcand, Jean-Louis & Kumar, Shekhar Hari & Hongler, Max-Olivier & Rinaldo, Daniele, 2023. "Can one hear the shape of a target zone?," Journal of Mathematical Economics, Elsevier, vol. 107(C).
    7. Hertrich, Markus, 2020. "Foreign exchange interventions under a one-sided target zone regime and the Swiss franc," Discussion Papers 21/2020, Deutsche Bundesbank.

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