The burden of intervention: externalities in multilateral exchange rates arrangements
AbstractIn this paper we consider a regime where several target zones coexist. Parities are defended by manipulating money supplies in participating countries. As a result, interventions aimed at one given exchange rate influence other exchange rates as well. Such âexternalitiesâ are shown to have dramatic implications; shocks on each fundamental affect the whole range of exchange rates involved, intra-marginal interventions arise endogenously, and the exchange rate distribution does not exhibit the u-shaped pattern which is typical of traditional target zone models. Moreover, we compute the stationary distribution of exchange rates and fundamentals, and show that both are influenced by the ârules of the gameâ, i.e. currency used in interventions, sterilization procedures, etc.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 45 (1998)
Issue (Month): 1 (June)
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Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
- Flandreau, Marc, 1996. "The Burden of Intervention: Externalities in Multilateral Exchange Rates Arrangements," CEPR Discussion Papers 1504, C.E.P.R. Discussion Papers.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- F31 - International Economics - - International Finance - - - Foreign Exchange
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