Target zones in theory and history: Credibility, efficiency, and policy autonomy$

An experiment with an exchange-rate band in Austria–Hungary in the early 20th century provides a rare opportunity to discuss critical aspects of the theory of target zones. Providing a new derivation of the target zone model as a set of nested hypotheses, the inference is drawn that policy credibility and market efficiency were paramount in the success of the Austro-Hungarian experience. r 2006 Elsevier B.V. All rights reserved.