HOW LONG DO UNILATERAL TARGET ZONES LAST

We examine the expected survival time of a unilateral exchange rate ta rget zone, when constraints on monetary policy prevent the central ban k from exclusively focusing on defending the target zone. Generally th e width of the target zone has a negligible effect on the expected sur vival time, and the dominant determinants are reserve levels and the d egree of real and monetary divergence between the country in question and the rest of the world. For seemingly realistic parameters, the exp ected survival time is fairly long: a few decades rather than a few ye ars.