On the sustainability of exchange rate target zones with central parity realignments

摘要

I show that parity realignments alone do not suffice to ensure the long-run sustainability of an exchange rate target zone with imperfect credibility due to the gambler's ruin problem. However, low credibility and frequent realignments can destabilize the exchange rate. (C) 2015 Elsevier B.V. All rights reserved.