Target Zone Models and the Intervention Policy : The Swedish Case

This paper is a study of the intervention policy of the Swedish central bank using daily intervention data for the late 1980s. In contrast to the first generation of target zone models, we find that the interventions occur all over the exchange rate band and almost every day. Based on this evidence we estimate an exchange rate target zone model with intra-marginal interventions. The results go a long way towards explaining the well-established hump-shaped exchange rate distribution, and lack of non-linearities