Many recent papers suggest that the basic flex-price target zone model
does not perform well empirically. This paper investigates the testab
le implications of a sticky-price target zone model and finds that, to
a limited extent, it has a better empirical performance than the simp
lest flex-price model. However (in terms of nominal variables) the sti
cky-price model is found to be observationally equivalent to the flex-
price model when the latter is extended to include intra-marginal inte
rvention and realignments.