FIXING SOFT MARGINS

Non-parametric tolerance limits are employed to calculate soft margins such as advocated in Williamson's target zone proposal. In particular , the tradeoff between softness and zone width is quantified. This may be helpful in choosing appropriate margins. Furthermore, it offers po licymakers a framework for reference in the case of changing exchange rate policy. The empirical applications include an evaluation of the E MS zone width. We also show that the procedures for calculating the so ft margins are robust against alternative data-generating mechanisms.