NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

An Empirical Exploration of Exchange Rate Target-Zones

Robert P. Flood, Andrew K. Rose, Donald J. Mathieson

NBER Working Paper No. 3543
Issued in December 1990
NBER Program(s):   ITI   IFM

In the context of a flexible-price monetary exchange rate model and the assumption of uncovered interest parity, we obtain a measure of the fundamental determinant of exchange rates. Daily data for the European Monetary System are used to explore the importance of non-linearities in the relationship between the exchange rates and fundamentals. Many implications of existing "target-zone" exchange rate models are tested; little support is found for existing non-linear models of limited exchange rate flexibility.

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Document Object Identifier (DOI): 10.3386/w3543

Published: Carnegie-Rochester Conference Series on Public Policy, 1991.

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