DSpace - Tor Vergata: Item 2108/50

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Title:	Exchange monitoring bands: theory and policy
Authors:	Corrado, Luisa Miller, Marcus H. Zhang, Lei
Keywords:	monitoring band non-linear mean-reversion near random walk dynamics
Issue Date:	Feb-2003
Publisher:	CEIS
Series/Report no.:	CEIS Tor Vergata Research Paper 8
Abstract:	Recent empirical research by Mark Taylor and co-authors has found evidence of hybrid dynamics for the real exchange rate. While there is a random walk near equilibrium, for real exchange rates some distance from equilibrium there is mean-reversion which increases with the degree of misalignment. An interesting question is whether this nonlinear mean-reversion is policy-induced. John Williamson (1998), for example, has proposed a "monitoring band" in which there is no intervention near equilibrium but there is substantial intervention triggered by exchange rate deviations outside a preset band. In this paper we develop a theoretical model for a stylised monitoring band to see whether it can generate patterns of nonlinear mean-reversion akin to those reported in empirical research.
URI:	http://ssrn.com/abstract=391480 http://hdl.handle.net/2108/50
Appears in Collections:	Research papers

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