Testing target-zone models using efficient method of moments

The objectives of this article are threefold-(1) ro test target-zone models using more efficient and direct econometric methodology than previous rese arch. (2) to identify an implicit band. if it exists, from observed data an d to test target-zone models based on the estimated implicit band rather th an the stated official band, and (3) to examine whether the exchange rate c an be modeled as a managed float system with a central parity that lacks a band. We find strong evidence that a model with intramarginal intervention and a narrower implicit (unofficial) band can describe the dynamics of the French franc/Deutsche mark exchange rate from January 1. 1987-July 30, 1993 .