Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/192144
Year of Publication: 
1995
Series/Report no.: 
Discussion Papers No. 160
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
Previous empirical evidence indicates that uncovered interest rate parity (UIP) does not hold for target zone exchange rates, like those in the European Monetary System and in the Nordic countries. We explore a target zone model where the market inferes the probability of a realignment of the band on the basis of a noisy signal. We show theoretically and through Monte Carlo simulations that if the market overrates the information content in the signal, then this may explain the empirical results obtained from testing UIP for target zone exchange rates.
Subjects: 
Monte Carlo
target zones
uncovered interest parity.
JEL: 
C12
C15
F31
G14
Document Type: 
Working Paper
Document Version: 
Digitized Version

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