Stabilization Policy with Bands

Gros, Daniel

This paper discusses stabilization policy in the presence of bands for the exchange rate. The bands are modelled in a probabilistic sense: monetary policy has to be such as to keep the probability, that the exchange rate stays within the bands, above a certain threshold. In contrast to other models of target zones, this formulation leads to a linear decision rule and implies sizeable intra-marginal interventions, which corresponds to the experience in the EMS. The extent to which short-run monetary policy is constraint by the bands depends on its own long-run components and on fiscal policy

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Year of publication:	1990
Authors:	Gros, Daniel
Other Persons:	Gros, Daniel (contributor)
Publisher:	Washington, D.C : International Monetary Fund
Subject:	Stabilisierungspolitik \| Stabilization policy \| Theorie \| Theory \| Geldpolitik \| Monetary policy