The term structure of interest rates in a sticky-price target zone model

Article Abstract:

An arbitrage-free valuation found that the term structure of interest rates is closely connected with a sticky-price target zone model with perfectly credible marginal central bank intervention. The study finds that the imposition of a target zone for the exchange rate corresponds to a target zone for long-term interest rate and that it decreases the variability of short-term and long-term interest rates. The creation of a target zone also induces a higher term structure relative to freely-floating exchange rates.

Exchange Rates, Interest Rates, Models

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Exchange rate variation, commodity price variation and the implications of international trade

Article Abstract:

A reduction in international trade caused by fluctuation in exchange rates is considered by many as a disadvantage of floating exchange rates. Company owners that are risk-averse are concerned with the domestic currency price variation in the goods they import and export. Results of a study shows that floating exchange rates do not affect the variation in the overall real domestic currency price of many commodities.

Administration of General Economic Programs, Foreign Exchange & Reserves Policy, Economic aspects, International trade, Commodities

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