An empirical examination of a multilateral target zone model
- Autores: Paul Schulstad, Ángel Serrat Tubert
- Localización: Documentos de trabajo - Banco de España, ISSN 0213-2710, Nº 32, 1995, págs. 5-61
- Idioma: inglés
- Enlaces
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Resumen
In this paper we estimate the multilateral target zone model of Serrat (1994) using a simulated method of moments methodology. In contrast to the widely reported poor performance of bilateral target zone models and other nonlinear models of exchange rates, the multilateral model fits European Monetary System data very well. We also conduct Monte-Carlo simulation exercises to evaluate the power of our tests against competing alternative hypotheses. In addition, we can explain the negative results of the previous empircal literature in the context of the model. Thus, the additional insights provided by the multilateral model, turrn out to be of extreme empirical relevance. They are driven by the parameters reflecting the degree of cooperation among monetary authorities in maintaining the regime, which have been neglected by previous theoretical and empirical literature.
