How to devalue exchange rates, without building up reserves: Strategic theory for central banking
AbstractCentral banks, wanting to devalue their currency, often intervene in the foreign exchange market by buying up foreign currency. Such interventions even if effective lead to a build up of foreign exchange reserves. This paper argues that the coupling of devaluation and reserve build up can be avoided if the central bank intervention takes the form of a ‘schedule’, that is, commitment to buying and selling conditional on the exchange rate.
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Bibliographic InfoArticle provided by Elsevier in its journal Economics Letters.
Volume (Year): 117 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/ecolet
Exchange rate; Central bank intervention; Currency dealers; Oligopoly;
Find related papers by JEL classification:
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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"International Credit and Welfare: A Paradoxical Theorem and Its Policy Implications,"
05-04, Cornell University, Center for Analytic Economics.
- Basu, Kaushik & Morita, Hodaka, 2006. "International credit and welfare: A paradoxical theorem and its policy implications," European Economic Review, Elsevier, vol. 50(6), pages 1507-1528, August.
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- Bresnahan, Timothy F, 1981. "Duopoly Models with Consistent Conjectures," American Economic Review, American Economic Association, vol. 71(5), pages 934-45, December.
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