Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Macroeconomic Problems of Asian Economies G1-V2
This paper provides a modelling framework for evaluating the exchange rate dynamics in target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' expectation formation about the undisclosed band change as they learn about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime into a symmetric two-sided system with a narrow exchange rate band.
Currency Board Arrangement Target Zone Model Hong Kong