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The profitability of U.S. intervention

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  • Michael P. Leahy
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    Abstract

    In this paper I address some of the issues associated with measuring the profits and losses from intervention and show that U.S intervention since the beginning of generalized floating in 1973 has earned positive economic profits for the U.S. monetary authorities. Profitability has been largest during episodes of intervention that have generated large foreign-exchange exposures. Fundamental explanations for the profitability of intervention are difficult to isolate, but I discuss possibilities that are consistent with the data. Finally I consider the effects profitable intervention may have on macroeconomic activity through its effect on the government budget constraint.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1989/343/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1989/343/ifdp343.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 343.

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    Date of creation: 1989
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    Handle: RePEc:fip:fedgif:343

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    Related research

    Keywords: Foreign exchange - Law and legislation;

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    Cited by:
    1. Sjoo, Boo & Sweeney, Richard J., 2001. "The foreign-exchange costs of central bank intervention: evidence from Sweden," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 219-247, April.
    2. Richard T. Baillie & Owen F. Humpage, 1992. "Post-Louvre intervention: did target zones stabilize the dollar?," Working Paper 9203, Federal Reserve Bank of Cleveland.
    3. Sjoo, Boo & Sweeney, Richard J., 2000. "Time-varying foreign-exchange risk and central bank intervention: estimating profits from intervention and speculation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 275-286, December.
    4. Sweeney, R. J., 2000. "Does the Fed beat the foreign-exchange market?," Journal of Banking & Finance, Elsevier, vol. 24(5), pages 665-694, May.
    5. Blake LeBaron, . "Technical Trading Rule Profitability and Foreign Exchange Intervention," Working papers _002, University of Wisconsin - Madison.
    6. Michael D. Bordo & Anna J. Schwartz, 1990. "What has Foreign Market Intervention Since the Plaza Agreement Accomplished?," NBER Working Papers 3562, National Bureau of Economic Research, Inc.
    7. Owen F. Humpage, 1994. "Institutional aspects of U.S. intervention," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-19.
    8. L. Menkhoff & M. Schlumberger, 1995. "Persistent profitability of technical analysis on foreign exchange markets?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 48(193), pages 189-215.
    9. Leahy, Michael P, 1995. "The profitability of US intervention in the foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 823-844, December.
    10. Sweeney, Richard J., 1997. "Do central banks lose on foreign-exchange intervention? A review article," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1667-1684, December.
    11. L. Menkhoff & M. Schlumberger, 1995. "Persistent profitability of technical analysis on foreign exchange markets?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 48(193), pages 189-215.

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