The credibility and performance of unilateral target zones: a comparison of the Mexican and Chilean cases

Abstract

The purpose of this study is tu gauge the performance of unilateral target zone arrangements in two Latin American countries, Mexico and Chile. In doing so we look at the institutional and historical evolution of these exchange rate regimes. We then deal with performance in a more formal fashion by looking at the stochastic behavior of the exchange rates and at the credibility of the target zones using techniques developed by Svensson (1991) and Chen and Giovannini (1992a, 1992b, and 1993).