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Journal Articles Journal of International Economic Law Year : 1998

The Burden of Intervention : Externalities in Multilateral Exchange Rates Arrangements

Marc Flandreau
  • Function : Author
  • PersonId : 1114408

Abstract

In this paper, the author considers 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, intramarginal interventions arise endogenously, and the exchange rate distribution does not exhibit the u-shaped pattern which is typical of traditional target zones. Instead, his model gives rise to 'intramarginal 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
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Dates and versions

hal-03416385 , version 1 (05-11-2021)

Identifiers

  • HAL Id : hal-03416385 , version 1
  • SCIENCESPO : 2441/646

Cite

Marc Flandreau. The Burden of Intervention : Externalities in Multilateral Exchange Rates Arrangements. Journal of International Economic Law, 1998, 45 (1), pp.137 - 171. ⟨hal-03416385⟩

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