The Determination

According to Seabra (1998, P. 205), the regimen of exchange bands is a general theoretical structure. It can be treated as a flexible regimen if the bands will be enough ample, or as a regimen of fixed exchange if the bands will be narrow. In this direction, the characterization of a regimen of bands and the determination of its functioning requires some definitions: (i) Dimension of the band. The amplitude of the exchange bands depends on the flexibility degree of the monetary politics desired by the Central banking.

Trade-off between anti-inflationary, resultant credibility of the rigidity of the exchange, and the edge of maneuver of monetary politics must be evaluated in the establishment of the dimension of the band. In general terms, in a regimen of bands a result searchs that is a combination enters the flexible regimen purely and the fixed exchange. In other words, the bands do not have to be so narrow the point not to allow some flexibility of the politics monetary, nor so ample that they do not impose limits to the action of this monetary politics. (II) Realinhamento of the band. The establishment of limits between which the exchange tax can vary results, throughout the time, in real desalinhamentos, that is, in changes in the competitiveness between the countries, in the measure where the shocks reach, of not identical form, the economy domesticates and the economy external. … Given the necessity of periodic realinhamentos in the bands, another question to consider is if the realinhamento follows a rule or is made discretional.

A rule prevents surprises and diminishes the uncertainty, however a time can generate inflationary expectations that if knows that the Central banking will go to modify the bands, depreciating the currency when, for example, the exchange tax if approaches to the superior limit of the band. … (III) Intervention delinquent or intramargem.

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