Detail On the importance of the central bank's preferences in a foreign exchange market target zone Bibliografi Author: Decornez, Stephane ; Butler, John Scott (Advisor) Topik: ECONOMICS; FINANCE|ECONOMICS; THEORY|BUSINESS ADMINISTRATION; BANKING Bahasa: (EN )    ISBN: 0-591-79840-9     Penerbit: Vanderbilt University     Tahun Terbit: 1997     Jenis: Theses - Dissertation Fulltext: 9827581.pdf (0.0B; 1 download) Abstract Traditionally, target zone models are based on a simplified Monetary Model where most fundamentals are unknown and represented by a single random variable. Moreover, the role of the central bank is largely ignored. Under such conditions, the best estimation technique available is the Method of Simulated Moments (MSM). The aim of this paper is to find a solution to an exchange rate target zone where the general economy is integrated as a constraint to the decision-making central bank. Doing so makes it possible to find a solution to the exchange rate where fundamentals are known. This allows more traditional estimation techniques such as a Non-Linear Two Stage Least Squares (NL2SLS) to be used. Introducing the central bank yields an exchange rate with mean-reverting properties and emphasizes the tradeoff between tightening the monetary policy to fight inflation and stabilize the currency, and easing the monetary policy to lower unemployment. Using Ito's lemma, it is possible to endogenize the expected depreciation. The solution is a second-order stochastic partial differential equation. An analytical result thus far had not been possible to find and the model could only be solved numerically or using Fourier series. Using Laplace transforms, however, along with the even less restrictive assumption of asymmetric credibility, it is possible to express the expected depreciation and the exchange rate as a random walk based on a generalized Wiener process. The conclusion of the paper is that the more a central bank is averse to unemployment, the more the currency will depreciate and the more it will be expected to depreciate. In other words, the preference of the central bank may be powerful enough to counteract the stabilizing effect of currency bands. When extending the model to two large interacting economies, reaction functions can be used to examine how central banks are going to interact in a Cournot and Stackelberg framework. Two game theoretic models with asymmetric information introduce speculators as a player, and analyze their decision to attack the currency and the central bank's decision to defend it. Empirical estimates are encouraging. With the German mark as the currency of reference within the EEC, countries which are traditionally associated with a weak currency are all found to have higher aversion to unemployment than the Bundesbank. Opini Anda Klik untuk menuliskan opini Anda tentang koleksi ini! Lihat Sejarah Pengadaan  Konversi Metadata   Kembali

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