01819cas a2200241 a 4500 AALejournalIMF006857 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451853766 1018-5941 BD-DhAAL BD-DhAAL Werner, Alejandro. Target Zones and Realignment Expectations : The Israeli and Mexican Experience / Alejandro Werner. Washington, D.C. : International Monetary Fund, 1995. 1 online resource (20 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper studies the Mexican and Israeli experience with a target zone. The first part of the paper develops a model of exchange rate determination under a target zone regime with stochastic realignments, and examines the conditions under which the adoption of the target zone, instead of a fixed exchange rate, reduces the volatility of the interest rate differential. We conclude that if the variance of the expected realignment is sufficiently large, then the target zone will be useful. The second part of the paper is an empirical study that shows that the target zone regime helped reduce interest rate variability in Israel and Mexico by absorbing part of the shocks to the expected realignment with movements of the exchange rate inside the band. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1995/114 Full text available on IMF http://elibrary.imf.org/view/journals/001/1995/114/001.1995.issue-114-en.xml IMF e-Library