The Market pp 95-111 | Cite as

The Foreign Exchange Market and the Effect of Currency Bands

  • Marcus Miller
  • Paul Weller
Part of the British Association for the Advancement of Science book series (BAAS)


Flood and Garber (1983) argued that the expectation of Britain’s return to the Gold Standard should have affected the value of the pound sterling even before the event; and they advocates the use of ‘stochastic process switching’ techniques to analyse such phenomena. Subsequently, it was international efforts to stabilise exchange rates (such as the Louvre Accord of 1987) which stimulated Paul Krugman (1988) to another application of these techniques — to study how currencies might behave inside wide currency bands.


Assure Defend Alan Swivel 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Bertola, G. and Caballero, R. (1990) ‘Target Zones and Realignments’, CEPR Discussion Paper No. 398 (March).Google Scholar
  2. Buiter, W. H. and Pesenti, P. A. (1990) ‘Rational Speculative Bubbles in an Exchange Rate Target Zone’, mimeo, Yale University (September).CrossRefGoogle Scholar
  3. Campbell, J. Y. and Kyle, A. S. (1988) ‘Smart Money, Noise Trading and Stock Price Behaviour’, NBER Technical Working Paper No. 71, Boston, MA, NBER.Google Scholar
  4. De Long, J. B., Bradford, J., Schliefer, A., Summers, L. and Waldmann, R. (1987) ’The Economic Consequences of Noise Traders’, NBER Working Paper No. 2715, Boston, MA, NBER.CrossRefGoogle Scholar
  5. Dornbusch, R. (1976) ‘Expectations and Exchange Rate Dynamics’, Journal of Political Economy, vol. 84, no. 6 (December), pp. 1116–76.CrossRefGoogle Scholar
  6. Flood, R. P. and Garber, P. (1983) ‘A Model of Stochastic Process Switching’, Econometrica, vol. 51, pp. 537–52.CrossRefGoogle Scholar
  7. Flood, R. P. and Garber, P. (1989) ‘The Linkage Between Speculative Attack and Target Zone Models of Exchange Rates’, NBER Working Paper No. 2918 in Krugman and Miller (1991).CrossRefGoogle Scholar
  8. Froot, K. and Obstfeld, M. (1989) ‘Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach’ (Washington: International Monetary Fund), Working Paper (June).CrossRefGoogle Scholar
  9. Ichikawa, M., Miller, M. and Sutherland, A. (1990) ‘Entering a Pre-announced Currency Band’, Economic Letters, vol. 34, no. 4, pp. 363–8.CrossRefGoogle Scholar
  10. Krugman, P. R. (1988) ‘Target Zones and Exchange Rate Dynamics’, NBER Working Paper No. 2481 (January).CrossRefGoogle Scholar
  11. Krugman, P. R. (1989a) Exchange Rate Instability (Cambridge, MA: MIT).Google Scholar
  12. Krugman, P. R. (1989b) ‘Target Zones with Limited Reserves’, mimeo, MIT (August).Google Scholar
  13. Krugman, P. R. and Miller, M. (1991), eds., Exchange Rate Targets and Currency Bands (Cambridge: Cambridge University Press).Google Scholar
  14. Krugman, P. R. and Rotemberg, R. (1990), ‘Target Zones with Limited Reserves’ (revised), mimeo, MIT (July), in Krugman and Miller (1991).CrossRefGoogle Scholar
  15. Miller, M. and Weller, P. A. (1988) ‘Solving Stochastic Saddlepoint Systems: a Qualitative Treatment with Economic Applications’, Warwick Economic Research Paper No$1309 (December). Also available as CEPR Paper No. 308 (April 1989).Google Scholar
  16. Miller, M. and Weller, P. A. (1989) ‘Exchange Rate Bands and Realignments in a Stationary Stochastic Setting’, in M. Miller, B. Eichengreen and R. Portes (eds), Blueprints for Exchange Rate Management (New York: Academic Press) pp. 161–73.Google Scholar
  17. Miller, M. and Weller, P. A. (1991) ‘Currency Bonds with Price Inflation’, Economic Journal, vol. 101, no. 409.Google Scholar
  18. Miller, M., Weller, P. and Williamson, J. (1989) ‘The Stabilizing Properties of Target Zones’, in R. C. Bryant et al. (eds), Macroeconomic Policies in an Interdependent World (Washington: International Monetary Fund) pp. 248–71.Google Scholar

Copyright information

© The British Association for the Advancement of Science 1992

Authors and Affiliations

  • Marcus Miller
  • Paul Weller

There are no affiliations available

Personalised recommendations