TY  - JOUR
AU  - Chen,Zhaohui
AU  - Giovannini,Alberto
TI  - Estimating Expected Exchange Rates Under Target Zones
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3955
PY  - 1992
Y2  - January 1992
UR  - http://www.nber.org/papers/w3955
L1  - http://www.nber.org/papers/w3955.pdf
N1  - Author contact info:
Alberto Giovannini
Unifortune Asset Management
Via Donizetti 53
20122 Milano, Italy
E-Mail: alberto.giovannini@alum.mit.edu
AB  - This paper develops a simple econometric procedure for estimating expected exchange rate under target zones. We employ the linear projection methodology to make predictions without relying on any prior structural or distributional assumptions, and at the same time demonstrate that such a methodology has to be modified in an important way to account for the presence of the fluctuation band. Our empirical results show that the band effect is nontrivial for narrow target zones such as the Bretton Woods system. We also develop a method to estimate the shapes of the unconditional distributions of exchange rates under target zones. The empirical results show that the unconditional distributions of exchange rates can take several different shapes, which may correspond to possibly widely different monetary and exchange-rate intervention policies. We also show how to use the projection equations and the information about the band to test the credibility of the exchange rate regimes.
ER  -