The Linkage Between Speculative Attack and Target Zone Models of Exchange Rates

Download or read book The Linkage Between Speculative Attack and Target Zone Models of Exchange Rates written by International Monetary Fund and published by International Monetary Fund. This book was released on 1989-04-06 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we generalize the target zone exchange rate as model formalized by Krugman (1988b). The main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the “smooth pasting” condition often invoked as a terminal condition. We aim to unify these two literatures by showing that the solution concepts in both are identical.