TY  - JOUR
AU  - Dominguez,Kathryn M.
AU  - Kenen,Peter B.
TI  - Intramarginal Intervention in the EMS and the Target-Zone Model of Exchange-Rate Behavior
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3670
PY  - 1993
Y2  - March 1993
UR  - http://www.nber.org/papers/w3670
L1  - http://www.nber.org/papers/w3670.pdf
N1  - Author contact info:
Kathryn M.E. Dominguez
University of Michigan
Department of Economics and Ford School
Weill Hall
735 South State Street
Ann Arbor, MI 48109
Tel: 734-764-9498
Fax: 734-763-9181
E-Mail: kathrynd@umich.edu

Peter B.. Kenen
Department of Economics
Princeton University
Princeton, NJ   08544
Tel: 609 258 4051
E-Mail: pbkenen@princeton.edu
AB  - Empirical work on exchange-rate behavior under a target-zone regime has used data produced by the European Monetary System (ENS) and has found that the data contradict important predictions made by the standard target-zone model. We argue that the contradictions reflect a misinterpretation of policies pursued by the ENS countries. They intervened intramarginally, to keep exchange rates well within the target zone, rather then intervening at the edges of the zone to prevent rates from crossing them. In the Besle-Nyborg Agreement of 1987, however, the ENS countries agreed to make fuller use of the band, and the effects of the agreement show up strongly in the data. Exchange rates behave differently after the agreement than they did before. The effect appears clearly in the behavior of the French franc and less decisively in the behavior of the Italian lira. The paper concludes by examining and rejecting alternative explanations for the observed differences in exchange-rate behavior.
ER  -