Partial Credibility, Information Selection and the Signalling Channel of Sterilized Interventions
AbstractThe signalling channel suggests that central banks use sterilized interven - tions in the foreign exchange market to convey information about future mone - tary policy to the market. To date, this theory is not sufficiently supported by theoretical work that establishes the link between intervention signals and exchange rates. This paper develops a two country model of sterilized interven - tions. I argue that reputational effects cannot eliminate the credibility problem between central banks and the private sector and that agents will only partially use available information to form exchange rate expectations. Both partial credibility and non-rational expectations reduce the effectiveness of interven - tions.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 13 (1998)
Issue (Month): ()
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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- Mark P. Taylor & Lucio Sarno, 2001.
"Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?,"
Journal of Economic Literature,
American Economic Association, vol. 39(3), pages 839-868, September.
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- Yu-Fu Chen & Michael Funke & Nicole Glanemann, 2011.
"The Signalling Channel of Central Bank Interventions: Modelling the Yen / US Dollar Exchange Rate,"
CESifo Working Paper Series
3610, CESifo Group Munich.
- Yu-Fu Chen & Michael Funke & Nicole Glanemann, 2011. "The Signalling Channel of Central Bank Interventions: Modelling the Yen/US Dollar Exchange Rate," Dundee Discussion Papers in Economics 260, Economic Studies, University of Dundee.
- Michael Funke & Yu-Fu Chen & Nicole Glanemann, 2011. "The Signalling Channel of Central Bank Interventions: Modelling the Yen / US Dollar Exchange Rate," Quantitative Macroeconomics Working Papers 21110, Hamburg University, Department of Economics.
- Chen, Yu-Fu & Funke, Michael & Glanemann, Nicole, 2011. "The Signalling Channel of Central Bank Interventions: Modelling the Yen/US Dollar Exchange Rate," SIRE Discussion Papers 2011-66, Scottish Institute for Research in Economics (SIRE).
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