Economics, Econometrics and Finance
4 years ago

Heterogeneous Expectations Approach Shakes Up Exchange Rate Dynamics in Target Zones

SSRN Electronic Journal
Exchange Rates Dynamics in a Target Zone - A Heterogeneous Expectations Approach
Christian Bauer, Paul De Grauwe, Stefan Reitz

Paper Summary

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The article explores how exchange rates behave within a specific range, using a method that considers different expectations among investors. The researchers found that these varying expectations can lead to more stable exchange rates within the target zone.