variable probability of realignment in a target zone the target zone model presented here encompasses a realignment probability that increases as the fundamental deviates from the center of the zone the analysis is carried out for cases where the fundamental follows either a brownian motion or an ornstein uhlenbeck process the simplest version of the model yields tractable results which prove to be robust when its most restrictive assumption is relaxed the solution obtained is dubbed the steeper s in accordance with its most relevant feature copyright 1994 by the editors of the scandinavian journal of economics

an heterogeneous expectations target zone model abstract this paper studies the credibility of a target zone considering the existence of heterogeneous expectations in the foreign exchange market in general we consider two types of agents credible and non credible agents i e fundamentalists one of the main results of the model is the possibility of collapse of a target zone as a function of expectations this implies the existence of an endogenous realignment risk

the effect of advance notification of plant closings on the re employment earnings of displaced blue collar workers in the united states this study uses the 1988 cps displaced workers surveyto analyse the effect of written advance notification of plant closings and relocations on the re employment earnings of blue collar and for comparison purposes white collar workers in the united states the results show that written notification given less than 60 days in advance of the layoffs did not have any significant effect on the re employment earnings of either blue collar or white collar workers of either gender however the results show that dislocated male blue collar workers who were given advance notification of 60 days or more before their layoffs had significantly higher re employment earnings this result is supportive of the federal plant closing legislation mandating 60 day advance notification to dislocated workers in the united states

target zone models with stochastic realignments an econometric evaluation abstract this paper provides empirical support for the second generation of target zone models with stochastic devaluation risk i propose a simple non linear framework with a time varying probability of exchange rate realignment this model nests alternatives i with no devaluation risk ii with constant devaluation risk and iii the random walk i reject these three in favor of a stochastic realignment model where devaluation risk varies with economic fundamentals the model predicts 13 of 17 realignments for the franc and lira including an out of sample episode in august 1993

evaluating the evidence on union employment and wages using current population survey data for the years 1973 86 this study tests the hypothesis that the steep decline of union employment shares since 1973 is related to increases in union wages relative to nonunion wages the authors show that although the aggregate union wage premium has changed little since 1973 some industry specific premiums have risen substantially and the industries with the rising premiums are those experiencing declines in union employment shares the increase in the premium explains from 21 to 64 of the decline in union shares depending on the equation specification the paper also presents a detailed set of union wage premiums and employment shares for the sample period

a model of the term structure of interest rates in an open economy with regime shifts abstract this paper presents a term structure model driven by three factors the foreign real interest rate the domestic inflation rate and the real exchange rate the model is designed to capture effects originating from exchange rate fluctuations and actions by central banks special attention is paid to regime shifts such as changes in the target inflation rate and devaluations an interesting result is that imperfect credibility of a target zone for the exchange rate mainly affects short term interest rates whereas a loss in an inflation target s credibility is likely to increase long term interest rates jel e43 f3 1997 elsevier science ltd

learning about intervention target zones abstract this paper provides a framework for evaluating how market participants beliefs about foreign exchange target zones change as they learn about central bank intervention policy we generalize the standard target zone model to allow for intra marginal intervention intra marginal intervention implies that market participants beliefs about the target zone can be determined from their beliefs about the likelihood of intervention we then estimate a daily probability of intervention model for the period following the louvre accord we find that the market s views of intervention target zones would have varied quite a bit over time even over this relatively stable period

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

macroeconomic stabilization and intervention policy under an exchange rate band abstract macroeconomic stabilization and foreign exchange market interventions are investigated for a small open economy with a nominal exchange rate band in a first best situation a band is not advisable from a stabilization perspective even though with money demand shocks no welfare losses are incurred with goods demand shocks narrowing the band affects the optimal coefficient of intramarginal monetary accommodation with restrictions on intramarginal interventions a band may be desirable in particular with supply shocks and no intramarginal interventions a narrower band is desirable when the central bank attaches a relatively smaller weight to price as opposed to output stability

employers and the welfare state the political economic organization of firms and social policy in contemporary capitalist democracies the authors argue that the organization of employers shapes social policy support among firms and in turn affects social policy outcomes specifically the authors argue that the centralization and cohesion of employer groups and economic cooperation across enterprises positively affects social welfare provision empirically the authors assess the impacts of business organization on social welfare effort in 15 developed democracies between the 1970s and 1990s the authors also provide analysis of the impact of employer organization on active labor market policy the authors find that the organization of employers is one of the most important determinants of overall social welfare effort the authors also find that employer organization affects the development of active labor market policies and it influences the degree to which social democratic parties pursue active labor market programs the authors conclude with a discussion of the findings implications for theories of social corporatism and the w

price barriers and the dynamics of asset prices in equilibrium a price barrier is a price level at which a large number of investors either buy or sell securities we analyze the dynamics of asset prices in an economy in which price barriers exist our analysis suggests that asset prices and volatility can exhibit jumps when the price barrier is reached interestingly the market s anticipation of future trades can influence prices in the opposite direction from what one might expect for example when multiple barriers exist stock prices can be inflated rather than depressed in the proximity of an anticipated stock sale

conditional heteroscedasticity in time series of stock returns evidence and forecasts this article presents new evidence about the time series behavior of stock prices daily return series exhibit significant levels of second order dependence and they cannot be modeled as linear white noise processes a reasonable return generating process is empirically shown to be a first order autoregressive process with conditionally heteroskedastic innovations in particular generalized autoregressive conditional heteroskedastic garch 1 1 processes fit to data very satisfactorily various out of sample forecasts of monthly return variances are generated and compared statistically forecasts based on the garch model are found to be superior copyright 1989 by the university of chicago

on the mean reverting properties of target zone exchange rates a cautionary note abstract we estimate a franc mark target zone model and find a very limited honeymoon effect monte carlo experiments calibrated with the estimates caution against the use of standard linear tests for non mean reversion as indirect tests of the target zone model

central bank interventions and exchange rate band regimes abstract this paper presents an endogenous switching regression model for the exchange rate process where the switch is defined by the central bank criteria functions for intervening we study the signal effect of interventions on the exchange rate using norwegian daily data on official interventions we first find that interventions seemed to have been more effective in moving the exchange rate in the expected desired direction in the regime when the exchange rate was kept away from the edges of the band this type of intervention regime also reduces significantly the conditional volatility of the exchange rate thus when the exchange rate was near the weakest edge of the currency band its conditional variance was significantly larger than when it was moving around its central parity finally we show that in order to obtain consistent estimates intervention variables cannot enter as exogenous variables in the conditional mean or conditional variance of the exchange rate

on the sustainability of exchange rate target zones with central parity realignments abstract i show that parity realignments alone do not suffice to ensure the long run sustainability of an exchange rate target zone with imperfect credibility due to the gambler s ruin problem however low credibility and frequent realignments can destabilize the exchange rate

determinants of the implied shadow exchange rates from a target zone abstract the paper provides a continuous time model of the dynamic behavior of exchange rates and interest rates when exchange rates are managed within a target zone with the possibility of realignments in the case of a realignment the exchange rate jumps to a shadow exchange rate the timing of realignments is modelled by a cox process with an intensity that depends on the location of the exchange rate in the target zone band as well as the distance to the shadow exchange rate we set up an approximate maximum likelihood estimation approach and provide parameter estimates for six erm target zones moreover in the empirical analysis we filter out the shadow exchange rates and investigate which fundamental macroeconomic factors are able to explain the short run and long run behavior of the filtered shadow exchange rates

assessing target zone credibility mean reversion and devaluation expectations in the erm 1979 1992 abstract the paper presents estimates of devaluation expectations for six erm currencies relative to the deutsche mark for the period march 1979 april 1992 both the simplest test and the drift adjustment method are used the simplest test adjusts interest rate differentials for the maximum and minimum expected rate of depreciation within the exchange rate band the drift adjustment method adjusts interest rate differentials by the estimated expected rate of depreciation within the band the latter method gives more precise estimates especially for short horizons and allows statistical inference and hypothesis testing expected rates of devaluation have generally fallen during the period still some devaluation expectations relative to the deutsche mark remain in 1992 except for the belgian luxembourg franc and the netherlands guilder expected rates of devaluation have fluctuated more than interest rate differentials

modelling probabilities of devaluations i show why when the realized rates of depreciation within the exchange rate band are regressed on a given information set and conditioned on ex post actual no realignment a la drift adjustment a peso problem is still encountered the reason is that the frequency of realignments in the data need not be the same as the frequency of the even small subjective probabilities that a realignment may take place i suggest an alternative approach to solve the peso problem and provide consistent estimates my estimates of the expected realignment rates are greater than the ones obtained using the drift adjustment method

institutional choices and labor market policy a british swedish comparison focusing on employment exchange systems the authors explain how early labor market institutions established by british and swedish governments affected the possibilities for subsequent policy they demonstrate how the way in which labor exchanges were implemented in britain and sweden limited and facilitated respectively active labor market policy after 1945 the absence of institutional legitimacy in the legacy of the british labor exchange system contrasts with the legitimacy achieved by the swedish system the authors identify the reasons for this comparative pattern and analyze its significance

political and institutional factors in regime changes in the erm an application of duration analysis this paper analyses the functioning of the european exchange rate mechanism erm to that end we apply duration models to estimate an augmented target zone model explicitly incorporating political and institutional factors into the explanation of european exchange rate policies the estimations are based on quarterly data of eight currencies participating in the erm covering the complete history of the european monetary system our results suggest that both economic and political factors are important determinants of erm currency policies concerning economic factors the money supply the real exchange rate the interest rate in germany and the central parity deviation would have negatively affected the duration of a given central parity while credibility and the price level in germany would have positively influenced such duration regarding political variables elections central bank independence and left wing administrations would have increased the probability of maintaining the current regime while unstable governments would have been associated with more frequent regime changes moreover we show how the political augmented model outperforms the model which just incorporates pure economic determinants both in terms of explanatory power and goodness of fit

soft versus hard targets for exchange rate intervention when targeting money prices or credit monetary authorities typically follow rules that combine flexibility over short horizons with discipline over longer horizons usually by committing to average targets for monetary aggregates or inflation over pre specified periods yet when targeting exchange rates monetary authorities typically follow rules that require strict adherence to announced targets in both the short and the long run in this paper we explore the implications of a policy for exchange rate intervention that combines flexibility over short horizons with discipline over long horizons our version of this soft target zone related to an idea ofjohn williamson 1985 requires a monetary authority to maintain the exchange rate on average rather than at all times as in the erm within a pre announced band we study the implications of this policy for the volatility of exchange rates and for the vulnerability of the exchange rate arrangement to speculative attacks practical reasons including the difficulty of targeting money and inflation on a continuous basis contribute to common use of soft i e average rules when targeting these aggregates more important however average targets allow

are exchange rate bands better than fixed exchange rates the imported credibility approach this paper explicitly incorporates exchange rate bands into the barro gordon model of inflation this is a non trivial extension focusing on markov perfect equilibria we specify the properties of the optimal policy functions exchange rate dynamics and hence the arguments for and against target zones the attractiveness of alternative exchange rate regimes i e fixed flexible and target zones and the position of exchange rates inside the band depend on the inflationary performance of the center country

an arbitrage free trilateral target zone model abstract this paper proposes an arbitrage free trilateral model of a credible target zone regime with bands on each bilateral exchange rate the no arbitrage condition reduces the system to only two dimensions any two rates must obey their own boundaries but in addition the free rein for movements is restricted by the band of the redundant rate therefore target zone models defined in bilateral settings do not apply to general systems with a cobweb of bilateral bands such as the european monetary system since the model has no known analytical solution it is estimated by the method of simulated moments

assessing the credibility of a target zone evidence from the ems this paper provides some new evidence on the credibility of the exchange rate mechanism erm of the european monetary system ems the study differs from previous research in the literature in three main respects first the main contribution is the use of several credibility indicators some of which have never been applied before to all of the currencies under study this allows one to strengthen the results obtained in this paper second a longer period than that of previous studies is analysed covering the complete ems history third a comparison has been made of the prediction qualities of the different indicators in order to explore their ability to capture the main erm events realignments changes in the fluctuations bands and speculative pressures fourth the indicators are applied to the experience of the new modified erm linking the currencies of non euro area member states to the euro showing the relevance of this approach in the near future with the enlargement of the european union

modelling the ff mm rate by threshold cointegration analysis this paper investigates a sticky price model of exchange rate determination extension of krugman s target zone model with price inertia applied to the french franc a novel theoretical argument is considered threshold cointegration such that the long run relationship between the parity and its fundamentals is dormant within a certain range of disequilibria but is restored when the system crosses the boundaries over the period 1987 1993 nonlinearities in the ff dm rate consistent with the credibility of this target zone were detected by pointing out a band reversion mechanism a shock persistence analysis which highlights a nonlinear reversion of the exchange rate deviation is also implemented

an interpretation of recent research on exchange rate target zones how do exchange rate bands work compared to completely fixed rates between realignments or more precisely what are the dynamics of exchange rates interest rates and central bank interventions within exchange rate bands does the difference between bands and completely fixed exchange rates matter and if so which of the two arrangements is best or more precisely what are the tradeoffs that determine the optimal bandwidth this article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones with emphasis on main ideas and results and without technical detail

a new indicator to assess the credibility of the ems abstract this paper proposes a new credibility indicator for the ems based on the realignment expectations calculated using the inferred probabilities derived from the estimation of a markov switching regimes model this indicator avoids most of the problems presented by the so called drift adjusted method and in particular it accounts in a natural manner for ex ante expectations instead of using ex post realignment times in order to deal with the jumps in the exchange rates the periods of high probability of realignment match very closely the crisis of the ems

the term structure with semi credible targeting the federal reserve sets targets for interest rates which it enforces through direct market intervention these targets are changed periodically in this paper we develop a term structure model in which the short rate is subject to a control which keeps it close to a target which changes from time to time the probability of target changes is not constant in the model but changes as a function of observables the model performs well at explaining the shifts in the yield curve that accompany target changes in u s financial markets the federal reserve bank the fed is a unique player usually we assume that market participants are price takers in financial markets however there is evidence that this is not true of the fed in fact the fed sets targets for short term rates which it attempts to maintain by market intervention injecting or withdrawing funds from the market to keep the rates near their targets targets are changed from time to time and market participants know when such a target change occurs they may in fact have some limited ability to forecast such target changes several recent papers have provided evidence that models which allow the short rate to revert toward a mean which is itself a random process perform

the failure of training in britain analysis and prescription in the last decade education and training et reform has become a major issue in many of the world s industrial powers one theme which runs throughout these reform initiatives is the need to adapt et systems to the changing economic environment these changes include the increasing integration of world markets the shift in mass manufacturing towards newly developed nations and the rapid development of new technologies most notably information technologies education and training are seen to play a crucial role in restoring or maintaining international competitiveness both on the macro level by easing the transition of the workforce into new industries and at the micro level where firms producing high quality specialized goods and services require a well qualified workforce capable of rapid adjustment in the work process and continual product innovation this paper will highlight the need for policy makers and academics to take account of the two way nature of the relationship between et and the economy

spanish unions institutional legacy and responsiveness to economic and industrial change using empirical data drawn from multiple sources including interview material the author examines spanish trade unions responses to the reorganization of spain s economy and changes in the struc

the burden of intervention externalities in multilateral exchange rates arrangements abstract in this paper we consider a multilateral target zone model that generalizes krugman s model of a bilateral target zone parities are defended by manipulating money supplies in participating countries this means that interventions aimed at one given exchange rate influence other exchange rates as well as a result of these externalities shocks on each fundamental affect the whole range of exchange rates involved moreover intra marginal interventions arise endogenously and the exchange rate distribution does not exhibit the u shaped pattern which is typical of traditional target zones instead our model gives rise to intra marginal targets to which exchange rates tend to return the location of these targets is shown to depend on the intervention sterilization mix adopted by monetary authorities

overtime pay overtime hours and labor unions this article analyzes the effect of labor unions on overtime compensation and overtime hours estimates from may 1985 current population survey data indicate that unionization increases the prevalence of premium pay for overtime and reduces the incidence and extent of overtime hours along with the finding of previous research that unionized workers are more susceptible to temporary layoffs these results are consistent with a model in which unions use overtime pay to stabilize working hours and expand membership

interest rate speculative attacks and target zones abstract 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

a new breed of exchange rate bands chile israel and mexico following inflation stabilization programmes where a fixed exchange rate is used as an anchor a number of countries have gradually shifted towards a regime of increased flexibility in particular chile israel and mexico have adopted for a few years a regime of crawling exchange rate bands this article documents and analyzes their unique experience of immediate concern is the question whether the shift from fixed to crawling bands is perceived as the signal of a tilt towards policy relaxation on the contrary it could be seen as a way of restoring external competitiveness after a period of real appreciation the evidence collected in this article supports the latter view as a way of moving towards a sustainable equilibrium the shift to crawling bands is found to have a stabilizing influence on financial markets on inflation expectations and on the passthrough from exchange rates to prices

union effects on white collar compensation this paper uses two new data sources each of which combines information on worker and establishment characteristics with detailed information on the components of employee compensation to examine union nonunion pay differentials for white collar workers estimates reveal that nonunion wages and total compensation are more responsive than union pay levels to worker productivity differences such as education and work experience also large firms pay 10 to 15 percent more to their white collar employees than small firms in the nonunion sector but only 5 percent or less in the union sector overall the white collar union wage differential appears to be 3 5 to 4 0 percent rising to 7 1 percent when fringe benefits are included in the dependent variable significant spillovers to nonunion white collar workers which appear to erode the measured union nonunion pay differentials are also found

reinventing welfare regimes employers and the implementation of active social policy denmark and britain have adopted quite similar active social reforms in which employers play a major role in the programmatic delivery of services however the implementation of the programs has differed dramatically in the two countries danish firms despite having had virtually no prior involvement in administering social programs have participated in far greater numbers than british employers who by contrast have long provided private employment based social benefits drawing from interviews with 107 randomly selected british and danish corporations this article seeks to explain why danish employers have participated at higher rates than their british counterparts subtle programmatic differences that reflect each country s welfare regime have had profound feedback effects on firms willingness to participate in the programs these findings have implications for regimes capacities both to correct for traps and to revise social protections to meet the needs of the new economy

price barriers in the dow jones industrial average this study tests the popular claim that the djia s movements around key reference points affect investor sentiment and thus price behavior it is found that the djia s rise and fall is indeed restrained by support and resistance levels at multiples of 100 e g 2800 2900 3000 etc but that having broken through a 100 level the djia then moves by more than otherwise warranted a monte carlo study and comparisons with other indices confirm the significance of these findings this suggests that some agents may trade on the basis of the djia but does not necessarily suggest that the market is inefficient

a pitfall in computing exchange rate density in the ems band abstract it is not enough to look at the distance of a currency from its intervention limits against the dm to determine whether or not it is close to the edge of the ems band in practice currencies often come up against a limit with another currency before reaching a limit against the dm we show that taking account of multilateral obligations most currencies did not spend a disproportionate amount of time near the middle of the available fluctuation band especially before 1987

financial markets views about the euro swiss franc floor exchange rates and option prices incorporate market participants views about the credibility and the effects of exchange rate targets i present a model to determine exchange rates under policy targets that can be used to price options the model is estimated with euro swiss franc exchange rate and options price data in the first few months of the minimum exchange rate policy the implied survival probability of the policy for a 3 month horizon was typically less than 75 over time the credibility increased and this probability reached 95 in august 2014

the linkage between speculative attack and target zone models of exchange rates in this paper we generalize the target zone exchange rate as model formalized by krugman 1988b to include finite sized interventions in defense of the zone 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 usually invoked as a terminal condition this abstract was borrowed from another version of this item

regime switching and interest rates in the european monetary system this paper examines the impact that a currency target zone has on short term interest rates for a number of countries in the european monetary system we characterize the short rate using a regime switching model that allows fbr a differently parameterized mean reverting square root process in each regime we find that the volatility the level and the speed of adjustment are all higher in the regime that is operative during speculative attacks and currency crises moreover we allow the conditional probability of being in each regime to be state dependent so the model can be used to examine questions relating to the likelihood of realignments and the stability of the target zone system c 1999 elsevier science bn all rights reserved jel classification e43 g12

implicit bands in the yen dollar exchange rate this article attempts to identify implicit exchange rate regimes for the yen dollar exchange rate to that end we apply a sequential procedure that considers both the dynamics of exchange rates and central bank interventions to data covering the period from 1971 to 2003 our results suggest that implicit bands existed in two subperiods april december 1980 and march october 1987 the latter coinciding with the louvre accord furthermore the study of the credibility of such implicit bands indicates the high degree of confidence attributed by economic agents to the evolution of the yen dollar exchange rate within the detected implicit band rate thus lending further support to the relevance of such implicit bands

a univariate analysis of ems exchange rates using a target zone model summary the models in the literature on exchange rate target zones imply a non linear time series model for the exchange rate we show how the parameters of such models can be estimated and develop maximum likelihood and method of simulated moments estimators for the target zone model of krugman 1991 the maximum likelihood estimator is based on a computationally attractive approximation to the exact predictive density of the continuous time model monte carlo experiments are used to assess the properties of this estimator in the empirical part we estimate the model with data on recent ems exchange rates we find that the krugman 1991 target zone model is not able to explain the full observed kurtosis and conditional heteroscedasticity of the exchange rate returns

oil price mean reversion and zone readjustments observing opec s short term price output ceiling behavior during the late 1980s and 1990s one can conclude that it attempts to stabilize the market price within a range of its announced target price by controlling the output ceiling if the price moves within four to five dollars below the target price it usually reduces the output ceiling and assigns new quotas to its member countries to keep the price close to the target price in reality opec established a band for the market price positioned round the target price by basically choosing suitable upper and lower limits for the output or at least in soft markets it places tolerance zone below the target price in order to restrict the discrepancy between the market price and the target price the lower limit is particularly needed because it sets a price floor and ensures that the market price stays above the significantly lower marginal cost of oil production if the limits of these zones are backed by a perfectly credible intervention policy they can generate an expectations process that should turn the market prices around even before any intervention takes place while opec in some sense observes the target zones for its prices thosemore zones are neither well defined nor vigorously defended it can not always or may not be willing to maintain the price within the limits of the desired zone by cutting the output ceiling it must sometimes readjust the target price and output ceiling and thus create a new target zone to reflect the market s new fundamentals this is particularly true now because opec is losing market share to the other oil producers and is contemplating to shift the current band actual readjustments in the target price can be so large as in 1980 and 1985 that the newmarket price must jump as well they can occur when both the market price is near the limits of the band as well as when it is inside the band but still further away from those limits less

wage effects of increased union coverage methodological considerations and new evidence although many studies show a positive relationship between extent of unionization and union members wages some analysts suggest that this relationship could reflect a concentration of labor organization in industries with potentially high wage gains rather than unions efficacy in raising wages consistent with that speculation studies across occupations or geographic areas generally show a much weaker relationship between unionization and wages than do studies across industries the authors of this study argue however that the weakness of the relationship found in some empirical research is due to the use of data sets mixing local market industries characterized by local bargaining with national market industries characterized by national bargaining an empirical analysis supports this hypothesis wages are positively correlated with the extent of unionization in a local market industry supermarkets but not in a national market industry aerospace

target zones and realignments recent contributions emphasize that the presence of exchange rate target zones has important effects on the within band behavior of exchange rates when agents are forward looking the authors find that the implications of available models are inconsistent with european exchange rate data and they suggest that the frequent realignments occurring in the period they consider may be responsible for this they construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence copyright 1992 by american economic association

stochastic trends and jumps in ems exchange rates abstract in this paper we study the statistical properties of ems exchange rate returns our findings show that jumps time varying parameters and conditional leptokurtosis are pertinent features in the empirical distributions of ems exchange rate returns allowance for fat tails however tends to reduce the measured frequency of jumps in the distributions to more realistic proportions most successful in capturing the relevant features of ems exchange rate returns is a combined jump garch model with conditionally t distributed innovations jel f31

clustering in crude oil prices and the target pricing zone hypothesis abstract this paper studies the target pricing zone tpz hypothesis for crude oil by examining price clustering in the dollar digit it is hypothesized that price clustering occurs within an established tpz if opec is able to defend the upper and lower bounds through output changes the results show that prices strongly cluster around the dollar digit value of 9 within the tpz sub periods but not outside the sub periods furthermore the degree of clustering declines when production capacity utilization is high and when production significantly exceeds quotas consistent with opec s inability to defend the zone nine centered clustering also results in lower contemporaneous and next day volatility these results support the target pricing zone hypothesis of crude oil

from comparative public policy to political economy putting political institutions in their place and taking interests seriously the historical institutionalist tradition in comparative politics commonly assigns analytical primacy to political institutions whereas this polity centeredness may be quite justifiable for purposes of comparative public policy students of comparative political economy should pay systematic attention not only to economic institutions but also to a range of economic structural variables that lie beyond the conventional confines of institutional analysis providing the basis for an analysis of collective actors and their interests such an approach is needed to account for institutional change and policy realignments within stable institutions

monetary and real shocks and the optimal target zone abstract an exchange rate target zone is analysed in a model where the economy is disturbed by shocks to money demand and goods demand the stabilising properties of a target zone are compared to those of fixed and flexible exchange rate regimes it is found that a target zone offers a compromise between these two extremes it is also shown that when there are shocks to both money and goods demand a target zone is better than either a fixed rate or a floating rate in the sense that it minimises the variance of output and prices

exchange rates under ems target zones an econometric investigation this study tests krugman s model on exchange rate target zones using four old ems exchange rates those of the currencies of belgium france italy and the netherlands against the deutsche mark vast theoretical literature is available but there are very few empirical studies testing the main results of krugman s model namely the honeymoon effect smooth pasting and the overall s curved relationship between fundamental and exchange rate the present study supports the honeymoon effect but does not find any evidence in support of smooth pasting or of an s curved relationship between the exchange rate and fundamentals for the belgian franc french franc and italian lira against the deutsche mark the dutch guilder very closely follows movements in the german mark throughout the period 1981 90 end of month exchange rates and euro currency interest rates data are used

target zone models with price inertia solutions and testable implications many recent papers suggest that the basic flex price target zone model does not perform well empirically this paper investigates the testable implications of a sticky price target zone model and finds that to a limited extent it has a better empirical performance than the simplest flex price model however in terms of nominal variables the sticky price model is found to be observationally equivalent to the flex price model when the latter is extended to include intramarginal intervention and realignments copyright 1994 by royal economic society

regulated equity returns a puzzle abstract based on a database of u s electric utility rate cases spanning nearly four decades the returns on equity authorized by regulators have exhibited a large and growing premium over the riskless rate of return this growing premium does not appear to be explained by traditional asset pricing models often in direct contrast to regulators stated intent we suggest possible alternative explanations drawn from finance public policy public choice and the behavioral economics literature however absent some normative justification for this premium it would appear that regulators are authorizing excessive returns on equity to utility investors and that these excess returns translate into tangible profits for utility firms

implied exchange rate distributions evidence from otc option markets abstract this paper uses a rich new dataset of option prices on the dollar mark dollar yen and key ems cross rates to extract the entire risk neutral probability density function pdf over horizons of 1 and 3 months we compare three alternative smoothing methods cubic splines an implied binomial tree trimmed and untrimmed and a mixture of lognormals for transforming option data into the pdf despite their methodological differences the three approaches lead to a similar pdf clearly distinct from the lognormal benchmark and typically characterized by skewness and leptokurtosis we then document a striking positive correlation between skewness in these pdfs and the spot rate the stronger a currency the more expectations are skewed towards a further appreciation of that currency we interpret this finding as a rejection that innovations in these exchange rates are independent of the level or characteristic of a credible target zone explicit or implicit instead this positive correlation is consistent with target zones with endogenous realignment risk we discuss two interpretations of our results on skewness when a currency is stronger the actual probability of further large appreciation is higher or because of risk such states are valued more highly

intervention policy and mean reversion in exchange rate target zones the swedish the intervention policy of the swedish central bank is studied using daily intervention data for the late 1 980s in contrast to the first generation of target zone models we find that the interventions occur all over the exchange rate band and almost every day based on this evidence we estimate an exchange rate target zone model with intra marginal interventions the results go a long way towards explaining the well established hump shaped exchange rate distribution and lack of non linearities

the political economy under monetary union has the euro made a difference economic and monetary union emu has transformed europe and has created an integrated pan european economy much research has focused on understanding this integration process and what benefits and costs it entails this paper identifies a political economy channel of emu as the monetary union implies that member states had to transfer or at least curtail their policy autonomy in several areas such as monetary policy and fiscal policy the paper shows that emu has helped reduce the impact of political shocks on the domestic economy of member states but magnified the transmission of political shocks within the euro area equally importantly economies with weak domestic policies and institutions exhibited a significantly higher sensitivity to domestic political shocks before emu but not thereafter while this may entail that emu has brought benefits to countries with weaker policies and institutions by insulating them from adverse political developments at home a potential drawback is that it may provide weaker market discipline for domestic political stability marcel fratzscher and livio stracca

exchange rate target zones realignments and the interest rate differential theory and evidence abstract this paper develops a target zone model for the exchange rate where the expected realignment is an increasing function of the distance of the exchange rate from the central parity as a percentage of the width of the band in this framework the interest rate differential increases with the deviation of the exchange rate from the central parity when the exchange rate is close to the central parity and it decreases when the exchange rate is close to the edges of the band finally the paper looks at the evidence from the ems and finds partial support for the implications of the model

quantitative modelling of the eur chf exchange rate during the target zone regime of september 2011 to january 2015 krugman 1991 s target zone model for exchange rate dynamics has become the reference of a large part of this literature despite its simplicity and elegance empirical evidence has been lacking not least because it is difficult to capture the predicted non linear relationship between the observable exchange rate and the non observable fundamental value this is why we propose a different approach by inverting locally the relation between exchange rate and fundamental value we derive analytical expressions for the conditional volatility and the probability density as a function of the exchange rate this allows us to examine krugman s prediction directly from historical data and furthermore enables us to test the smooth pasting condition which is intimately related to the no arbitrage condition concretely we study the performance of the euro swiss franc exchange rate in the extraordinary period from september 6 2011 to january 15 2015 when the swiss national bank enforced a minimum exchange rate of 1 20 swiss francs per euro we show that the data are well explained by the theory and conclude that krugman s target zone model holds after all but apparently only under extreme and sustained pressure that pushes continuously the exchange rate very close to the boundary of the target zone

nominal and real union wage differentials and the effects of industry and smsa density 1973 83 many studies have examined the influence of union density union members as a percentage of all workers on earnings in the private sector but few such studies have looked at the public sector using data from the 1991 current population survey this

on the symmetry between inflation and exchange rate targets abstract although several countries recently have adopted formal inflation targets for monetary policy little research has been done on the implications of such targets for prices this paper shows that there is a symmetry between exchange rate and inflation targets

a high frequency analysis of price resolution and pricing barriers in equities on the adoption of a new currency we use ultra high frequency trade by trade data to demonstrate that equity price clustering and pricing predictability around psychologically important prices in greece switches away from drachma focused with the introduction of the euro but does not immediately switch to euro clustering the change in trader price focus around the euro introduction addresses an open debate in the clustering literature on whether the presence of clustering is a bias related to the current prices or anchoring to past prices our findings of a decline in drachma clustering but lack of switch to euro effects supports the case for clustering being a trading feature that is slow to transfer to new pricing regimes a key advantage of the ultra high frequency dataset is we are also able to demonstrate the presence of psychological pricing barriers related to each currency that are not detectable in daily data

ems exchange rate bands a monte carlo investigation of three target zone models abstract a monte carlo analysis is used to compare three target zone models in reproducing some stylized facts of weekly deutsche mark exchange rates in the european monetary system for the period january 1987 august 1992 the models are the standard target zone model a model of infracum intramarginal interventions and a model of unfulfilled realignment expectations compared with the corresponding dollar rates returns on deutsche mark rates exhibit much more non normality which can be generated endogenously by the latter two models and more conditional heteroskedasticity which can be produced simultaneously by the infra cum intramarginal interventions model

target zones and small realignments abstract we study the behaviour of the exchange rate in a target zone in the case where a realignment may occur at the edges of the band we show in contrast to the previous result that the stabilizing property of the target zone may remain even when the credibility is very low

were the peseta exchange rate crises forecastable during target zone period during the 1990s several fixed or quasi fixed exchange rate systems collapsed currency crises have happened in both developed and emerging countries so it is necessary to forecast and avoid them however financial market crises have been extremely difficult to forecast economic agents expectations are nonobservable variables that cannot be ignored in the models in addition if it is required to study the european case during the 1990s the censored disposition of the exchange rate cannot be ignored either a discrete time target zones model is proposed where these aspects are taken into account it will be tested in a peseta deutsche mark exchange rate framework from june 1989 to december 1998 the results indicate differences between before and after the shift in band widths in august 1993

a structural threshold model of the exchange rate under optimal intervention abstract by considering a social trade off between targeting the exchange rate and minimizing intervention costs nonlinear exchange rate dynamics can be captured by a structural threshold model this article provides a theory based empirical exchange rate model and shows how to put the model into an empirical investigation to estimate the structural threshold model we propose a two step procedure which separately estimates the permanent and temporary fundamentals of the foreign exchange market a demonstration of our approach is applied to 1981q3 2008q3 taiwan s foreign exchange market with a brief review of its monetary policies and central bank given prior estimation results are consistent with theoretical predictions and many intervention operations of taiwan s central bank are successfully identified

analysis of exchange rate target zones using a limited dependent rational expectations model with jumps this article examines the exchange rate determination in a target zone regime when the bounds can be fixed for an extended period but are subject to occasional jumps in this case the behavior of the endogenous variable is affected by the agents expectations about both the occurrence and the size of the jump empirical results using data for the franc mark exchange rate provide support for the nonlinear model with time varying realignment probability and indicate that the agents correctly anticipated most of the observed changes in the central parity

intramarginal intervention in the ems and the target zone model of exchange rate behavior abstract exchange rate data produced by the european monetary system ems contradict important predictions made by the standard target zone model we show that the contradictions reflect a misinterpretation of policies pursued by the ems countries they intervened intramarginally to keep exchange rates will within their bands not at the edges of the bands to keep rates from crossing them in the basle nyborg agreement of 1987 however they agreed to make fuller use of the band and exchange rates behave differently thereafter the effect appears clearly in the behavior of the french franc and less decisively in the behavior of the italian lira we conclude by examining and rejecting other explanations for the observed difference in exchange rate behavior

the choice of exchange rate regime and speculative attacks we develop a framework for studying the choice of exchange rate regime in an open economy where the local currency is vulnerable to speculative attacks the optimal regime is determined by a policymaker who trades off the loss from nominal exchange rate uncertainty against the cost of maintaining a given regime this cost is affected in turn by the likelihood of a speculative attack searching for the optimal regime within the class of exchange rate bands we show that the optimal regime is either a peg a zero width band a free float an infinite width band or a non degenerate finite width band the paper shows that lower costs of moving across currencies induce policymakers to set more flexible exchange rate systems this lowers ceteris paribus the likelihood of financial crises one implication is that a tobin tax does not necessarily reduce the likelihood of currency crises the paper also investigates the effects of country size openess variability in fundamentals and reputation on the choice of exchange rate regime the role of abrupt changes in reputation in triggerering crises even with unchanged fundamentals as an alternative to sunspots is discussed and illustrated

modeling regional linkage of financial markets abstract with the development of globalization and regional economic integration regional markets linked with a common currency emerge in which investors from domestic market are allowed to trade in foreign markets empirical studies have evidenced extensively the existence of co movement of asset prices or cross correlation in market returns among these markets especially in global event however there is no theoretical model in literature that can provide economically plausible justifications for these stylized facts this research intends to fill up such a gap with a simplest possible nonlinear dynamic model based on the classical market maker framework of day and huang 1990 a two market ham model is developed which does not only prove in theory the existence of price co movement but also replicate in simulation this typical characteristic along with other well known stylized facts characterizing individual financial market moreover theoretical analysis suggests meaningful implications for market opening policy in particular in terms of financial stability a relatively small market may not benefit from market linkage and market opening is essentially a double edged sword

the foreign exchange risk premium in a target zone with devaluation risk abstract the foreign exchange risk premium in an exchange rate target zone is derived when the exchange rate is heteroskedastic within the band and there is a separate devaluation risk the risk premium is then the sum of two separate risk premia arising from uncertainty about exchange rate movements within the band and from uncertainty about devaluations both real and nominal risk premia are considered real and nominal risk premia from movements within the band are very small real and nominal risk premia from devaluations are larger but still relatively small proportions of the interest rate differential

target zones and forward rates in a model with repeated realignments abstract this paper studies the term structure of forward premia in a target zone with imperfect credibility the relationship between spot and forward exchange rates which reflects the possibility of realignments of the band is studied for various intervention policies with different degrees of credibility forward market data is used to estimate the implied credibility of the french german target zone during the ems parameter estimates accord with the experience of the ff dm exchange rate during the 1980s although spot exchange rates display little sensitivity to anticipated intervention forward data can be used to detect the effects of intervention on exchange rate dynamics

losing sleep at the market the daylight saving anomaly reply motivated by the recent flurry of activity in sleep research this paper explores the connection between sleep disruptions following spring and fall clock shifts associated with daylight savings time and equity returns it is shown that the weekend effect in the form of the lower than expected friday to monday returns is particularly pronounced for the two weekends involving daylight savings clock changes this abstract was borrowed from another version of this item

price clustering and natural resistance points in the dutch stock market a natural experiment abstract this paper focuses on the tendency of stock prices to cluster at round numbers like 10 20 30 etc and to a lesser extent 5 15 25 etc and the related effect of round number price barriers prices pass round numbers less frequently than other numbers two competing hypotheses are tested using data from the dutch stock market of the period 1990 2001 after 1 january 1999 stock prices were listed in euros while guilders were still the currency of daily life until 2002 the aspiration level hypothesis predicts that round number effects in guilders will only slowly disappear the odd price hypothesis predicts an abrupt change in round number effects after 1 january 1999 generally the results are consistent with the odd price hypothesis