English, Article, Journal or magazine article edition: Exchange Rate Monitoring Bands: Theory and Policy Corrado, L.; Luisa Corrado; Marcus Miller; ...

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Exchange Rate Monitoring Bands: Theory and Policy
Author
  • Corrado, L.
  • Luisa Corrado
  • Marcus Miller
  • Lei Zhang
Physical Description
  • preprint
Notes
  • Recent empirical research by Mark Taylor and coauthors has found evidence of hybrid dynamics for real exchange rates. 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 might be 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 of such a monitoring band to see whether it can generate patterns of nonlinear mean-reversion akin to those reported in empirical research.
  • RePEc:cam:camdae:0209
  • Recent empirical research by Mark Taylor and coauthors 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
  • Monitoring Band, Non-linear Mean-Reversion, Near Random Walk Dynamics
  • RePEc:mmf:mmfc06:146
Language
  • English
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