Optimal Target Zone and Stability Tradeoff
- 서울대학교 경제연구소
- Seoul Journal of Economics
- Seoul Journal of Economics Volume 13 No.1
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2000.0349 - 68 (19 pages)
- 0
Conventional literature on exchange rates largely ignores normative issues of the target zone regime. This paper builds a model for the optimal target zone and consider s whether the target zone is desired compared to other exchange rate regimes. The paper find s that when the central bank's objective is to minimize the sum of price and output variances. a target zone regime is superior to a fixed or floating exchange rate. In determining the band width, a tradeoff exists between output and price stability, with a wider band producing smaller output variability and larger price variability.
Abstract
Ⅰ. Introduction
Ⅱ. The Model
Ⅲ. A Tradeoff between Price and Output Stability
Ⅳ. The Case of the Standard Normal Distribution
Ⅴ. Optimal Band Width
Ⅵ. Conclusion
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