We document an empirical puzzle for EMS exchange rates during a period in which the bands on these exchanges rates were (almost) credible, i.e. exchange rate distributions are humpshaped rather than U-shaped as predicted by the standard target zone model. We offer an explanation of this puzzle...

Macroeconomic stabilisation and foreign exchange market interventions are inves-tigated within the context of a stochastic small open economy. With money demand shocks a peg is optimal, but with goods demand shocks a nominal income target is best. With supply shocks the optimal degree of...

A democratic society in which the distribution of wealth is unequal elects political parties that are likely to represent the interests of poor people. It is in the interests of the clientele of the resulting governments to attempt to levy inflation taxes in order to erode the real value of debt...