Like a fixed exchange rate, a target zone system may be subject to
speculative attacks when the reserves of the central bank are limited. This
paper analyzes such speculative attacks and their implications; it shows that
the recently developed "smooth pasting" model of target zones should be
viewed as a special case that emerges only when reserves are sufficiently
large. The paper then uses the target zone framework to resolve a seeming
paradox in predicting speculative attacks on a gold standard, arguing that
such a standard may best be viewed as the boundary between one-sided target
zones.
You may purchase this paper on-line in .pdf format
from SSRN.com ($5) for electronic delivery.
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX
