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U.S. Intervention: Assessing the Probability of Success

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  • Humpage, Owen F

Abstract

The martingale nature of exchange-rate changes insures that intervention often will appear successful in terms of altering or moderating exchange-rate movements, even if intervention were ineffective and undertaken randomly. I provide evidence that intervention generally lacks forecast value, except under a weak leaning-against-the-wind criterion. When I condition the probability of success by various aspects or techniques of intervention, however, I find that central-bank coordination and, to a lesser extent, large interventions increases the probability of success.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 31 (1999)
Issue (Month): 4 (November)
Pages: 731-47

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Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:4:p:731-47

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. William P. Osterberg & Rebecca Wetmore Humes, 1993. "The inaccuracy of newspaper reports of U.S. foreign exchange intervention," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 25-33.
  2. Edison, H.J., 1993. "The Effectiveness of Central-Bank Intervention: A Survey of the Litterature after 1982," Princeton Studies in International Economics 18, International Economics Section, Departement of Economics Princeton University,.
  3. Gordon H. Sellon, Jr., 1994. "Measuring monetary policy," Research Working Paper 94-12, Federal Reserve Bank of Kansas City.
  4. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February.
  5. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  6. Donald B. Adams & Dale W. Henderson, 1983. "Definition and measurement of exchange market intervention," Staff Studies 126, Board of Governors of the Federal Reserve System (U.S.).
  7. Loopesko, Bonnie E., 1984. "Relationships among exchange rates, intervention, and interest rates: An empirical investigation," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 257-277, December.
  8. Owen F. Humpage, 1988. "Intervention and the dollar's decline," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-16.
  9. Eijffinger, S.C.W., 1991. "Empirical evidence on foreign exchange market intervention: Where do we stand?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152907, Tilburg University.
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