Working Paper

Exchange Rates in Target Zones - Evidence from the Danish Krone

Authors

  • Mark
  • P. Taylor
  • Stefan Reitz
Publication Date

Although the ERM II rules allow the Danish krone to fluctuate against the euro within an official target zone of 4.5%, most of the time the exchange rate has remained in a narrow range around its unconditional mean. Estimating a Smooth Transition Autoregression Target Zone (STARTZ) model confirms that the exchange rate exhibits target zone dynamics consistent with a band of approximately 0.75 percent around its unconditional mean. We conclude that the Danmark Nationalbank intervention policy of intra-marginal operations successfully managed an informal target zone in the foreign exchange market.

Info

JEL Classification
E58, F31, G15

Key Words

  • Intervention
  • STARTZ model
  • Target Zone