NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Targeting the Exchange Rate: An Empirical Investigation

Shula Pessach, Assaf Razin

NBER Working Paper No. 3662 (Also Reprint No. r1864)
Issued in March 1991
NBER Program(s):   ITI   IFM

The purpose of this paper is to implement empirically a variant of the new theory of exchange rate targeting, suitable for high inflation small open economies. The theory formulates an expectations induced relationship between the exchange rate and the fundamental subject to random shocks and target zone constraints on rates of depreciation. The empirical analysis identifies the roles played by policy and market fundamentals in foreign exchange markets, and estimate the key parameters of the exchange rate dynamic equation.

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Document Object Identifier (DOI): 10.3386/w3662

Published: Review of International Economics, vol. 2, February 1994

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