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| Volume 1,
No. 1,
April
2002
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| The “Lack” of Volatility
Trade-Offs in Exchange Rate Zones with Sticky Prices |
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| Elias D. Belessakos
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New
York Life Investment Management, U.S.A.
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| Christos I. Giannikos
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| Department
of Economics and Finance, Baruch College, U.S.A.
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| Abstract |
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| In
target zone regimes, volatility trade-offs between the nominal
exchange rate and the nominal interest rate differential depend on
the underlying monetary model assumption. In an economy with price
rigidities there exists no such trade-off when the exchange rate
overshoots.
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| Key
words:
exchange rate; target zones; volatility trade-offs; sticky prices;
overshooting
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| JEL
classification:
F31; E43 |
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