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Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models
Princeton University.
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
1990 (English)Report (Other academic)
Abstract [en]

In the model of this paper, an exchange rate fluctuates between given boundaries for random lengths of time and jumps discretely when devaluation occur. We provide explicit solutions for the stochastic processes followed by the exchange rate and by the expected rate of depreciation when the likelihood and the size of devaluations vary stochastically over time. The model produces realistic patterns of covariation between exchange rates and interest rate differentials, and provides interesting interpretations of available empirical evidence. We also specify how to infer devaluation risk from target zone data.

Place, publisher, year, edition, pages
Stockholm: IIES , 1990. , 33 p.
Series
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 481
National Category
Economics
Identifiers
URN: urn:nbn:se:su:diva-41788OAI: oai:DiVA.org:su-41788DiVA: diva2:337744
Available from: 2010-08-09 Created: 2010-08-09 Last updated: 2010-08-09Bibliographically approved

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Type fulltextMimetype application/pdf

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CiteExportLink to record
Permanent link

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Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
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  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
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