Krugman's target zones theory (1991) is well-Known in toe economic literature. In a small open-economy model, which includes the commodity, money, bond, and currency exchange markets, he argues that there will be a ”honeymoon effect” in the currency exchange market if the government adopts a target zones policy. This study extends his arguments to the stock market and examines whether the target zones policy will lead to the ”honeymoon effect” as described by Krugman. We find that the establishment of exchange-rate target zones may not exhibit the ”honeymoon effect” if the expected exchange-rate fluctuation is smaller than the influence of the expected stock price fluctuation on the exchange rate, no matter whether the shocks originate from the money market or the stock market. The paper also shows that Krugman's conclusion is in fact a special case of our general theory.