TY  - JOUR
AU  - Krugman,Paul
AU  - Rotemberg,Julio
TI  - Target Zones with Limited Reserves
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3418
PY  - 1990
Y2  - August 1990
UR  - http://www.nber.org/papers/w3418
L1  - http://www.nber.org/papers/w3418.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

Julio J. Rotemberg
Graduate School of Business
Harvard University, Morgan Hall
Soldiers Field
Boston, MA  02163
Tel: 617/495-1015
Fax: 617/496-5994
E-Mail: jrotemberg@hbs.edu
AB  - 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.
ER  -