TY  - JOUR
AU  - Krugman,Paul R.
TI  - Trigger Strategies and Price Dynamics in Equity and Foreign Exchange Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2459
PY  - 1987
Y2  - December 1987
UR  - http://www.nber.org/papers/w2459
L1  - http://www.nber.org/papers/w2459.pdf
N1  - Author contact info:
Paul R. Krugman
Department of Economics
Princeton University
Woodrow Wilson School
Princeton, NJ  08544
Tel: 609/258-4570
Fax: 609/258-2809
E-Mail: pkrugman@princeton.edu
AB  - Trigger strategist-s may be defined as act-ors in asset markets who buy or sell when the price reaches a predetermined level ; t-hey include participants in portfolio insurance schemes in equity markets and central banks who intervene to defend an exchange rate target zone. This paper presents an approach to modeling the effects of trigger strategists, with emphasis on how target zones affect market expectations. It is shown that a commitment to defend a target zone will generate stabilizing expectations within the band, which may generate a "target zone honeymoon" . an extended period in which the announcement of a target. zone stabilizes exchange rates without any need for action on the part of authorities. However, an imperfectly credible target zone is vulnerable to crises in which the market tests the authorities' resolve.
ER  -