Comments: Assessing Target Zone Credibility: Mean Reversion and Devaluation Expectations in the ERM 1979-1982 by Lars E.O. Svensson

Article Abstract:

A study was conducted to evaluate research on target zone exchange rate models. Earlier research has shown that target zone s-shapes present minimal empirical basis and that the application of simple techniques for measuring market expectations generates interest differential results. However, it is shown that low expected rate realignment does not necessarily exhibit certainty by market participants of exchange rate band stability.

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Comments: Assessing Target Zone Credibility: Mean Reversion and Devaluation Expectations by Lars E.O. Svensson

Article Abstract:

A study was conducted to examine research on target zone models. Earlier research has shown that factors of variable interest rates, the European Monetary System and a substantial measurement technique of devaluation expectations were crucial in determining target zone model credibility. It is shown that a consideration of the technicalities for measurement techniques will further establish the validity of the target zone model.

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