Kiel Working Papers, Kiel Institute for World Economics
No 1827:
Exchange Rates in Target Zones - Evidence from the Danish Krone
Mark P. Taylor and Stefan Reitz
Abstract: Although the ERM II rules allow the Danish krone to
fluctuate against the euro within an official target zone of 4.5%, most of
the time the exchange rate has remained in a narrow range around its
unconditional mean. Estimating a Smooth Transition Autoregression Target
Zone (STARTZ) model confirms that the exchange rate exhibits target zone
dynamics consistent with a band of approximately 0.75 percent around its
unconditional mean. We conclude that the Danmark Nationalbank intervention
policy of intra-marginal operations successfully managed an informal target
zone in the foreign exchange market.
Keywords: Target Zone, STARTZ model, Intervention; (follow links to similar papers)
JEL-Codes: E58,; F31,; G15; (follow links to similar papers)
21 pages, February 2013
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