A Soft Edge Target Zone Model: Theory And Application To Hong Kong

Hong Kong’s currency is pegged to the US dollar in a currency board arrangement. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities revamped the one-sided currency board mechanism into a symmetric two-sided system with a narrow exchange rate band. This paper reviews the characteristics of the new currency board arrangement and embeds a theoretical soft edge target zone model typifying many intermediate regimes, to explain the notable achievement of speculative peace and credibility since May 2005.

Especulative (sic) attack on exchange rate target zone regime : the uncertainty case

We present a continuous time target zone model of speculative attacks. Contrary to most of the literature that considers the certainty case, i.e., agents know for sure the Central Bank behavior in the future, we build uncertainty into the madel in two different ways. First, we consider the case in whicb the leveI of reserves at which the central bank lets the regime collapse is uncertain. Alternatively, we ana1ize the case in which, with some probability, the government may cbange its policy reducing the initially positive trend in domestic credito In both cases, contrary to the case of a fixed exchange rate regime, speculators face a cost of launching a tentative attack that may not succeed. Such cost induces a delay and may even prevent its occurrence. At the time of the tentative attack, the exchange rate moves either discretely up, if the attack succeeds, or down, if it fails. The remlts are consistent with the fact that, typically, an attack involves substantial profits and losses for the speculators. In particular, if agents believed that the government will control fiscal imbalances in the future, or alternatively, if they believe the trend in domestic credit to be temporary, the attack is postponed even in the presence of a signal of an imminent collapse. Finally, we aIso show that the timing of a speculative attack increases with the width of the target zone.

Off-the-Record Target Zones: Theory with an Application to Hong Kongs Currency Board

This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band.

Az árfolyamsávok empirikus modelljei és a devizaárfolyam sávon belüli előrejelezhetetlensége = Empirical models of exchange rate target zones

A sávosan rögzített devizaárfolyamok elméleti és gyakorlati vizsgálatai a nemzetközi közgazdaságtan egyik legnépszerűbb témaköre volt a kilencvenes évek elején. A gyakorlati módszerek közül az alkalmazások és hivatkozások száma tekintetében az úgynevezett eltolódással igazítás módszere emelkedett ki. A módszert alkalmazó szerzők szerint amíg a lebegő árfolyamú devizák előrejelzése céltalan feladatnak tűnik, addig sávos árfolyam esetén az árfolyam sávon belüli helyzetének előrejelzése sikeresen végezhető. E tanulmány bemutatja, hogy az Európai Monetáris Rendszer és az északeurópai államok sávos árfolyamrendszereinél e módszer alkalmazásával adódott eredmények például a lebegő árfolyamú amerikai dollárra és az egységgyökfolyamatok többségére is érvényesek. A tanulmány feltárja e látszólagos ellentmondás okait, és bemutat egy olyan, a sávos árfolyamrendszerek főbb megfigyelt jellemzőire épülő modellt, amelynek keretei között a sávon belüli árfolyam előrejelzése nem feltétlenül lehetséges, mert a leértékelés előtti időszakban a sávon belüli árfolyam alakulása kaotikus lehet. / === / Following the development of the first exchange rate target zone model at the end of the eighties dozens of papers analyzed theoretical and empirical topics of currency bands. This paper reviews different empirical methods to analyze the credibility of the band and lays special emphasis on the most widely used method, the so-called drift-adjustment method. Papers applying that method claim that while forecasting a freely floating currency is hopeless, predicting an exchange rate within the future band is successful. This paper shows that the results achieved by applications to EMS and Nordic currencies are not specific to data of target zone currencies. For example, application to US dollar and even to most unit root processes leads qualitatively to the same. This paper explores the solutions of this puzzle and shows a model of target zones in which the exchange rate within the band is not necessarily predictable since the process might follow chaotic dynamics before devaluation.

How tight should one's hands be tied? Fear of floating and credibility of exchange rate regimes

This paper analyzes the linkages between the credibility of a target zone regime, the volatility of the exchange rate, and the width of the band where the exchange rate is allowed to fluctuate. These three concepts should be related since the band width induces a trade-off between credibility and volatility. Narrower bands should give less scope for the exchange rate to fluctuate but may make agents perceive a larger probability of realignment which by itself should increase the volatility of the exchange rate. We build a model where this trade-off is made explicit. The model is used to understand the reduction in volatility experienced by most EMS countries after their target zones were widened on August 1993. As a natural extension, the model also rationalizes the existence of non-official, implicit target zones (or fear of floating), suggested by some authors.

The Signalling Channel of Central Bank Interventions: Modelling the Yen/US Dollar Exchange Rate

This paper presents a theoretical framework analysing the signalling channel of exchange rate interventions as an informational trigger. We develop an implicit target zone framework with learning in order to model the signalling channel. The theoretical premise of the model is that interventions convey signals that communicate information about the exchange rate objectives of central bank. The model is used to analyse the impact of Japanese FX interventions during the period 1999 -2011 on the yen/US dollar dynamics.

The Signalling Channel of Central Bank Interventions: Modelling the Yen/US Dollar Exchange Rate

This paper presents a theoretical framework analysing the signalling channel of exchange rate interventions as an informational trigger. We develop an implicit target zone framework with learning in order to model the signalling channel. The theoretical premise of the model is that interventions convey signals that communicate information about the exchange rate objectives of central bank. The model is used to analyse the impact of Japanese FX interventions during the period 1999 -2011 on the yen/US dollar dynamics.

Uncovering Financial Markets Beliefs About Inflation Targets

This paper exploits the term structure of interest rates to develop testable economic restrictions on the joint process of long-term interest rates and inflation when the latter is subject to a targeting policy by the Central Bank. Two competing models that econometrically describe agents’ inferences about inflation targets are developed and shown to generate distinct predictions on the behavior of interest rates. In an empirical application to the Canadian inflation target zone, results indicate that agents perceive the band to be substantially narrower than officially announced and asymmetric around the stated mid-point. The latter result (i) suggests that the monetary authority attaches different weights to positive and negative deviations from the central target, and (ii) challenges on empirical grounds the assumption, frequently made in the literature, that the policy maker’s loss function is symmetric (usually a quadratic function) around a desired inflation value.

Migração em profundidade pré-empilhamento utilizando os atributos cinemáticos do empilhamento por superfície de reflexão comum

O empilhamento por superfície de reflexão comum (ou empilhamento SRC), conhecido como empilhamento CRS, do inglês Commom reflection surface, constitui-se em um novo método para o processamento sísmico na simulação de seções afastamento nulo (AN) e afastamento comum (AC). Este método é baseado em uma aproximação paraxial hiperbólica de segunda ordem dos tempos de trânsito de reflexão na vizinhança de um raio central. Para a simulação de seção AN, o raio central é um raio normal, enquanto que para a simulação de uma seção AC o raio central é um raio de afastamento finito. Em adição à seção AN, o método de empilhamento SRC também fornece estimativas dos atributos cinemáticos do campo de onda, sendo aplicados, por exemplo, na determinação (por um processo de inversão) da velocidade intervalar, no cálculo do espalhamento geométrico, na estimativa da zona de Fresnel, e também na simulação de eventos de tempos de difrações, este último tendo uma grande importância para a migração pré-empilhamento. Neste trabalho é proposta uma nova estratégia para fazer uma migração em profundidade pré-empilhamento, que usa os atributos cinemáticos do campo de onda derivados do empilhamento SRC, conhecido por método CRS-PSDM, do inglês CRS based pre-stack depth migration. O método CRS-PSDM usa os resultados obtidos do método SRC, isto é, as seções dos atributos cinemáticos do campo de onda, para construir uma superfície de tempos de trânsito de empilhamento, ao longo da qual as amplitudes do dado sísmico de múltipla cobertura são somadas, sendo o resultado da soma atribuído a um dado ponto em profundidade, na zona alvo de migração que é definida por uma malha regular. Similarmente ao método convencional de migração tipo Kirchhoff (K-PSDM), o método CRS-PSDM precisa de um modelo de velocidade de migração. Contrário ao método K-PSDM, o método CRS-PSDM necessita apenas computar os tempos de trânsito afastamento nulo, ao seja, ao longo de um único raio ligando o ponto considerado em profundidade a uma dada posição de fonte e receptor coincidentes na superfície. O resultado final deste procedimento é uma imagem sísmica em profundidade dos refletores a partir do dado de múltipla cobertura.

Sonographic visualization and ultrasound-guided block of the third occipital nerve: prospective for a new method to diagnose C2-C3 zygapophysial joint pain

BACKGROUND: Chronic neck pain after whiplash injury is caused by cervical zygapophysial joints in 50% of patients. Diagnostic blocks of nerves supplying the joints are performed using fluoroscopy. The authors' hypothesis was that the third occipital nerve can be visualized and blocked with use of an ultrasound-guided technique. METHODS: In 14 volunteers, the authors placed a needle ultrasound-guided to the third occipital nerve on both sides of the neck. They punctured caudal and perpendicular to the 14-MHz transducer. In 11 volunteers, 0.9 ml of either local anesthetic or normal saline was applied in a randomized, double-blind, crossover manner. Anesthesia was controlled in the corresponding skin area by pinprick and cold testing. The position of the needle was controlled by fluoroscopy. RESULTS: The third occipital nerve could be visualized in all subjects and showed a median diameter of 2.0 mm. Anesthesia was missing after local anesthetic in only one case. There was neither anesthesia nor hyposensitivity after any of the saline injections. The C2-C3 joint, in a transversal plane visualized as a convex density, was identified correctly by ultrasound in 27 of 28 cases, and 23 needles were placed correctly into the target zone. CONCLUSIONS: The third occipital nerve can be visualized and blocked with use of an ultrasound-guided technique. The needles were positioned accurately in 82% of cases as confirmed by fluoroscopy; the nerve was blocked in 90% of cases. Because ultrasound is the only available technique today to visualize this nerve, it seems to be a promising new method for block guidance instead of fluoroscopy.

International Money and Finance

We discuss the effectiveness of pegged exchange rate regimes from an historical perspective, drawing conclusions for their effectiveness today. Starting with the classical gold standard period, we point out that a succession of pegged regimes have ended in failure; except for the first, which was ended by the outbreak of World War I, all of the others we discuss have been ended by adverse economic developments for which the regimes themselves were partly responsible. Prior to World War II the main problem was a shortage of monetary gold that we argue is implicated as a cause of the Great Depression. After World War II, more particularly from the late-1960s, the main problem has been a surfeit of the main international reserve asset, the US dollar. This has led to generalized inflation in the 1970s and into the 1980s. Today, excessive dollar international base money creation is again a problem that could have serious consequences for world economic stability.

Preserved obstacle avoidance during reaching in patients with left visual neglect

We asked 12 patients with left visual neglect to bisect the gap between two cylinders or to reach rapidly between them to a more distal target zone. Both tasks demanded a motor response but these responses were quite different in nature. The bisection response was a communicative act whereby the patient indicated the perceived midpoint. The reaching task carried no imperative to bisect the gap, only to maintain a safe distance from either cylinder while steering to the target zone. Optimal performance on either task could only be achieved by reference to the location of both cylinders. Our analysis focused upon the relative influence of the left and right cylinders on the lateral location of the response. In the bisection task, all neglect patients showed qualitatively the same asymmetry, with the left cylinder exerting less influence than the right. In the reaching task, the neglect group behaved like normal subjects, being influenced approximately equally by the two cylinders. This was true for all bar two of the patients, who showed clear neglect in both tasks. We conclude that the visuomotor processing underlying obstacle avoidance during reaching is preserved in most patients with left visual neglect. (C) 2004 Elsevier Ltd. All rights reserved.

Attaining the minimum target of resolution WHA 54.19 for schistosomiasis control in the Rainforest Zone of the state of Pernambuco, Northeastern Brazil

Resolution 19 of the 54th World Health Assembly (WHA-54.19) urged member nations to promote preventive measures, ensure treatment and mobilize resources for control of schistosomiasis and soil-transmitted helminthiases (STH). The minimum target is to attend 75% of all school-age children at risk by year 2010. The Brazilian Ministry of Health (MoH) recommends biennial surveys of whole communities and treatment of the positives through the Schistosomiasis Control Program within the Unified Health System (PCE-SUS). However, by 2004 the PCE-SUS had covered only 8.4% of the 1.2 million residents in the Rainforest Zone of Pernambuco (ZMP). Six of the 43 municipalities still remained unattended. Only three of the municipalities already surveyed reached coverage of 25% or more. At least 154 thousand children in the 7-14 years old range have to be examined (and treated if positive) within the next five years to attend the minimum target of the WHA 54.19 for the ZMP. To make this target feasible, it is suggested that from 2006 to 2010 the PCE-SUS actions should be complemented with school-based diagnosis and treatment, involving health and educational organs as well as community associations to include both children in schools and non-enrolled school-age children.

MPC for tracking zone regions

This paper deals with the problem of tracking target sets using a model predictive control (MPC) law. Some MPC applications require a control strategy in which some system outputs are controlled within specified ranges or zones (zone control), while some other variables - possibly including input variables - are steered to fixed target or set-point. In real applications, this problem is often overcome by including and excluding an appropriate penalization for the output errors in the control cost function. In this way, throughout the continuous operation of the process, the control system keeps switching from one controller to another, and even if a stabilizing control law is developed for each of the control configurations, switching among stable controllers not necessarily produces a stable closed loop system. From a theoretical point of view, the control objective of this kind of problem can be seen as a target set (in the output space) instead of a target point, since inside the zones there are no preferences between one point or another. In this work, a stable MPC formulation for constrained linear systems, with several practical properties is developed for this scenario. The concept of distance from a point to a set is exploited to propose an additional cost term, which ensures both, recursive feasibility and local optimality. The performance of the proposed strategy is illustrated by simulation of an ill-conditioned distillation column. (C) 2010 Elsevier Ltd. All rights reserved.