Interest rate, speculative attacks and target zones

We study the behavior of the interest rate differential in a non-sustainable exchange rate target zone. We show that the relation between the interest rate differential and the fundamentals before the speculative attack is dependent on the expected post-attack monetary policy.

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Bibliographic Details
Published in:Economics letters 1999, Vol.62 (1), p.81-83
Main Author: Pansard, Fabrice
Format: Article
Language:English
Subjects:
Central banks
Exchange rate policy
Exchange rates
Interest
Interest rates
Monetary policy
Speculative attacks
Target zones
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Description
Summary:We study the behavior of the interest rate differential in a non-sustainable exchange rate target zone. We show that the relation between the interest rate differential and the fundamentals before the speculative attack is dependent on the expected post-attack monetary policy.
ISSN:0165-1765
1873-7374
DOI:10.1016/S0165-1765(98)00211-0