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Flandreau, Marc and Komlos, John (July 2003): Target Zones in
History and Theory: Lessons from an Austro-Hungarian Experiment
(1896-1914). Discussion Papers in Economics 2003-18 Journal of
Monetary Economics, 58     The first known experiment with an
exchange rate band took place in Austria- Hungary between 1896
and 1914. The rationale for introducing this policy rested on
precisely those intuitions that the modern literature has
emphasized: the band was designed to secure both exchange rate
stability and monetary policy autonomy. However, unlike more
recent experiences, such as the ERM, this policy was not
undermined by credibility problems. The episode provides an
ideal testing ground for some important ideas in modern
macroeconomics: specifically, can formal rules, when faithfully
adhered to, provide policy makers with some advantages such as
short term autonomy? First, we find that a credible band has a
“microeconomic” influence on exchange rate st