Exchange rate dynamics in crawling-band systems

Abstract

In this note we show that an exchange rate crawling-band system can borrow a portion of those aspects of a target zone that lead to its stabilizing effects on the exchange rate, depending on the relationship between the crawl rate and the drift of the fundamentals process. If the crawl rate is sufficiently high (with respect to the drift), the crawling-band is similar to a free float regime. As the crawl rate decreases, the crawling-band system collapses to a standard target zone.crawling band