Stochastic Shocks, Fads and Exchange Rate Fundamentals: An Empirical Evaluation of the Target Zone Proposal

  • Nicos M. Christodoulakis
Part of the International Economic Association Series book series (IEA)

Abstract

Real exchange rate misalignments between the G3 economies — US$, DM and Yen blocs — have always attracted attention in the discussion of international policy coordination. In fact, the very existence of exchange rate deviations from what is considered the ‘normal level’ was frequently the primary motive for considering macroeconomic policy coordination between different countries. One of the proposals that has strongly influenced the recent debate on policy coordination between the major economies has been the target zone (TZ) scheme, originated by Williamson (1985) and subsequently extended and elaborated by Williamson and Miller (1987), their colleagues and other researchers.

Keywords

Covariance Nash Volatility Rium OECD 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Barrell, R. and Wren-Lewis, S. (1989) ‘Fundamental Equilibrium Exchange Rates for the G7’, CEPR Discussion Paper, no. 323.Google Scholar
  2. Barrell, R., Gurney, A. and Dulake S. (1990) ‘World Economy’, National Institute Economic Review, May, pp. 25-48.Google Scholar
  3. Blanchard, O. and Watson, M. (1982) ‘Bubbles, Rational Expectations and Financial Markets’, NBER Working Paper no. 945.Google Scholar
  4. Christodoulakis, N., Kemball-Cook, D. and Levine, P. (1991) ‘Robust Rules for G3 Policy Coordination’, LBS, Discussion Paper.Google Scholar
  5. Currie, D. and Wren-Lewis, S. (1989) ‘Evaluating Blueprints for the conduct of International Macropolicy’, American Economic Review, May, pp. 264-69.Google Scholar
  6. Currie, D. and Wren-Lewis, S. (1990) ‘Evaluating the Extended Target Zone Proposal for the G3’, Economic Journal, January.Google Scholar
  7. De Long, J., Shleifer, A., Summers, L. and Waldmann, R. (1990) ‘Noise Trader Risk in Financial Markets’, Journal of Political Economy, vol. 98, no. 4, pp. 703–38.CrossRefGoogle Scholar
  8. Driskill, R. and McCafferty, S. (1980)’ speculation, Rational Expectations, and Stability of the Foreign Exchange Market’, Journal of International Economics, no. 10, pp. 91-102.Google Scholar
  9. Edison, H., Miller, M. and Williamson, J. (1987) ‘On Evaluating and Extending the Target Zone Proposal’, Journal of Policy Modelling, vol. 9, p. 1.CrossRefGoogle Scholar
  10. Frenkel, J., Goldstein, M. and Masson, P. (1989)’ simulating the Effects of Some Simple Coordinated versus Uncoordinated Policy Rules’, in Bryant, R. et al. (eds), Macroeconomic Policies in an Interdependent World (IMF).Google Scholar
  11. Fukao, M. (1990) ‘A Risk Premium Model of the Yen-Dollar and DM-Dollar Exchange Rates’, OECD Economic Studies, pp. 79-104.Google Scholar
  12. Garratt, A. (1990) ‘Bubbles and Exchange Rate Fundamentals’, PhD thesis, Queen Mary College.Google Scholar
  13. Hughes Hallett, A. (1991) ‘Target Zones and International Policy Coordination: The Contrast Between the Necessary and Sufficient Conditions for Success’, European Economic Review.Google Scholar
  14. Hughes Hallett, A., Holtham, G. and Hutson, G. (1989) ‘Exchange Rate Targetting as Surrogate International Cooperation’, in Eichengreen, B. et al. (eds), Blueprints for Exchange Rate Management (London: Academic Press).Google Scholar
  15. Miller, M. and Weiler, P. (1989) ‘Currency bubbles which Affect Fundamentals: A Qualitative Treatment’, mimeo, University of Warwick.Google Scholar
  16. Miller, M., Weiler, P. and Williamson, J. (1989) ‘The Stabilising Properties of Target Zones’, in Bryant, R. et al. (eds), Macroeconomic Policies in an Interdependent World (Brooking CEPR/IMF).Google Scholar
  17. Williamson, J. (1985) The Exchange Rate System (Washington: Institute for International Economics).Google Scholar
  18. Williamson, J. (1989) ‘The Case for Roughly Stabilising the Real Value of the Dollar’, American Economic Review, May, pp. 41-5.Google Scholar
  19. Williamson, J. and Miller, M. (1987) Target and Indicators: A Blueprint for the International Coordination of Economic Policy (Washington: Institute for International Economics).Google Scholar

Copyright information

© International Economic Association 1993

Authors and Affiliations

  • Nicos M. Christodoulakis
    • 1
  1. 1.Athens University of EconomicsGreece

Personalised recommendations