TY  - JOUR
AU  - Svensson,Lars E.O.
TI  - Why Exchange Rate Bands? Monetary Independence in Spite of Fixed Exchange Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4207
PY  - 1994
Y2  - June 1994
UR  - http://www.nber.org/papers/w4207
L1  - http://www.nber.org/papers/w4207.pdf
N1  - Author contact info:
Lars E.O. Svensson
Sveriges Riksbank
SE-103 37 Stockholm
SWEDEN
Tel: +46 8 787 0107
Fax: +46 8 21 0531
E-Mail: lars.svensson@iies.su.se
AB  - The paper argues that the reason real world fixed exchange rate regimes usually have finite bands instead of completely fixed exchange rates between realignments is that exchange rate bands, counter to the textbook result, give central banks some monetary independence, even with free international capital mobility. The nature and amount of monetary independence is specified, informally, and in a formal model, and quantified with Swedish krona data. Altogether the amount of monetary independence appears sizable. For instance, an increase in the Swedish krona band from zero to about plus or minus two percent may reduce the krona interest rate's standard deviation by about one-half.
ER  -