International Journal of Business and Economics Volume 1, No. 1 April​, 2002

The “Lack” of Volatility Trade-Offs in Exchange Rate Zones with Sticky Prices

Elias D. Belessakos

New York Life Investment Management, U.S.A.

Christos I. Giannikos

Department of Economics and Finance, Baruch College, U.S.A.

Abstract

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.

Keywords：exchange rate, target zones, volatility trade-offs, sticky prices, overshooting.

JEL Classifications：F31. E43.

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