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The welfare implications of foreign exchange intervention

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  • Ho, Wai-Ming

Abstract

This paper examines the welfare implications of foreign exchange intervention in a two-country, two-currency, general equilibrium model with limited participation in financial markets and cash-in-advance constraints on transactions. Both sterilized and nonsterilized intervention operations have significant impacts on the allocation of liquidity in international financial markets and therefore affect real economic activities. The welfare effects of shocks to monetary policy, sterilized and nonsterilized foreign exchange interventions are examined and compared. The design of welfare-maximizing intervention policy rules is also discussed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 8 (December)
Pages: 1360-1382

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:8:p:1360-1382

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Foreign exchange market Sterilized and nonsterilized interventions Liquidity effects Welfare analysis;

References

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  13. Breedon, Francis & Vitale, Paolo, 2004. "An Empirical Study of Liquidity and Information Effects of Order Flow on Exchange Rates," CEPR Discussion Papers 4586, C.E.P.R. Discussion Papers.
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