This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The case for foreign exchange intervention: the government as an active reserve manager

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Christopher J. Neely

Additional information is available for the following registered author(s):

Abstract

This paper argues that major governments should actively manage their foreign exchange portfolios to maximize the risk-adjusted return to the taxpayer by exploiting long-term, fundamental based predictability in floating exchange rates. Such transactions—equivalent to foreign exchange intervention—would improve welfare by transferring risk from private agents to the risk-tolerant government. Interventions explicitly designed to profit the reserve management authority would be more likely to be successful and, to the extent that they are, would reduce resource misallocation.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://research.stlouisfed.org/wp/2004/2004-031.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2004-031.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:fip:fedlwp:2004-031

Contact details of provider:
Postal: P.O. Box 442, St. Louis, MO 63166
Fax: (314)444-8753
Web page: http://www.stlouisfed.org/
More information through EDIRC

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Foreign exchange

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kathryn M. E. Dominguez, 2003. "When Do Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange Rate Movements?," Working Papers 506, Research Seminar in International Economics, University of Michigan. [Downloadable!]
  2. Sweeney, Richard J, 1986. " Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-82, March. [Downloadable!] (restricted)
  3. Takatoshi Ito & Richard K. Lyons & Michael T. Melvin, 1997. "Is There Private Information in the FX Market? The Tokyo Experiment," NBER Working Papers 5936, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Shleifer, Andrei & Vishny, Robert W, 1997. " The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March. [Downloadable!] (restricted)
    Other versions:
  5. Treynor, Jack L & Ferguson, Robert, 1985. " In Defense of Technical Analysis," Journal of Finance, American Finance Association, vol. 40(3), pages 757-73, July. [Downloadable!] (restricted)
  6. Michael Hutchison, 2003. "Is official foreign exchange intervention effective?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Jul 18. [Downloadable!]
  7. 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. [Downloadable!] (restricted)
  8. Kathryn M.E. Dominguez, 2003. "When Do Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange Rate Movements?," NBER Working Papers 9875, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Flood, Robert P & Rose, Andrew K, 1996. "Fixes: Of the Forward Discount Puzzle," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 748-52, November. [Downloadable!] (restricted)
    Other versions:
  10. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February. [Downloadable!] (restricted)
  11. Kilian, Lutz, 1999. "Exchange Rates and Monetary Fundamentals: What Do We Learn from Long-Horizon Regressions?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 491-510, Sept.-Oct. [Downloadable!]
  12. Williamson, John, 1987. "Exchange Rate Management: The Role of Target Zones," American Economic Review, American Economic Association, vol. 77(2), pages 200-204, May. [Downloadable!] (restricted)
  13. Edison, Hali J. & Miller, Marcus H. & Williamson, John, 1987. "On evaluating and extending the target zone proposal," Journal of Policy Modeling, Elsevier, vol. 9(1), pages 199-224. [Downloadable!] (restricted)
  14. Christopher J. Neely, 2002. "The temporal pattern of trading rule returns and central bank intervention: intervention does not generate technical trading rule profits," Working Papers 2000-018, Federal Reserve Bank of St. Louis. [Downloadable!]
  15. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August. [Downloadable!] (restricted)
    Other versions:
  16. Margarida Duarte & Alan C. Stockman, 2001. "Rational Speculation and Exchange Rates," NBER Working Papers 8362, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Owen F. Humpage, 2004. "On the rotation of the earth, drunken sailors, and exchange rate policy," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb 15. [Downloadable!]
  18. Fischer, Andreas M., 2003. "Measurement error and the profitability of interventions: a closer look at SNB transactions data," Economics Letters, Elsevier, vol. 81(1), pages 137-142, October. [Downloadable!] (restricted)
  19. Kouri, Pentti, J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-67, May/June. [Downloadable!] (restricted)
  20. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January. [Downloadable!] (restricted)
  21. 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. [Downloadable!] (restricted)
  22. Jonathan Kearns & Roberto Rigobon, 2003. "Identifying the Efficacy of Central Bank Interventions: Evidence from Australia," RBA Research Discussion Papers rdp2003-04, Reserve Bank of Australia. [Downloadable!]
  23. Sapp, Stephen, 2004. "Are all Central Bank interventions created equal? An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 443-474, March. [Downloadable!] (restricted)
  24. Kirman, Alan, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 137-56, February. [Downloadable!] (restricted)
  25. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring. [Downloadable!] (restricted)
  26. 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. [Downloadable!] (restricted)
  27. Kim, Soyoung, 2003. "Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework," Journal of International Economics, Elsevier, vol. 60(2), pages 355-386, August. [Downloadable!] (restricted)
  28. Blake LeBaron, 1994. "Technical Trading Rule Profitability and Foreign Exchange Intervention," International Finance 9411002, EconWPA. [Downloadable!]
    Other versions:
  29. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1, pages 19-46. [Downloadable!] (restricted)
  30. Devereux, Michael B. & Engel, Charles, 2002. "Exchange rate pass-through, exchange rate volatility, and exchange rate disconnect," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 913-940, July. [Downloadable!] (restricted)
    Other versions:
  31. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August. [Downloadable!] (restricted)
  32. Engel, Charles, 2000. "Long-run PPP may not hold after all," Journal of International Economics, Elsevier, vol. 51(2), pages 243-273, August. [Downloadable!] (restricted)
    Other versions:
  33. Frankel, Jeffrey A & Froot, Kenneth A, 1987. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, American Economic Association, vol. 77(1), pages 133-53, March. [Downloadable!] (restricted)
  34. Klein, Michael W. & Lewis, Karen K., 1993. "Learning about intervention target zones," Journal of International Economics, Elsevier, vol. 35(3-4), pages 275-295, November. [Downloadable!] (restricted)
    Other versions:
  35. Jeffrey A. Frankel, 1996. "How Well do Foreign Exchange Markets Function: Might a Tobin Tax Help?," NBER Working Papers 5422, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  36. Guy Meredith & Menzie D. Chinn, 1998. "Long-Horizon Uncovered Interest Rate Parity," NBER Working Papers 6797, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  37. Humpage, Owen F, 1999. "U.S. Intervention: Assessing the Probability of Success," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 731-47, November.
  38. Christopher J. Neely, 2000. "The practice of central bank intervention: looking under the hood," Working Papers 2000-028, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  39. Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, vol. 109(458), pages 662-76, October. [Downloadable!] (restricted)
  40. Payne, Richard & Vitale, Paolo, 2003. "A transaction level study of the effects of central bank intervention on exchange rates," Journal of International Economics, Elsevier, vol. 61(2), pages 331-352, December. [Downloadable!] (restricted)
    Other versions:
  41. Charles Engel, 1996. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  42. repec:rus:hseeco:21608 is not listed on IDEAS
  43. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25, pages 117-214. [Downloadable!] (restricted)
  44. LeBaron, Blake, 1999. "Technical trading rule profitability and foreign exchange intervention," Journal of International Economics, Elsevier, vol. 49(1), pages 125-143, October. [Downloadable!] (restricted)
  45. Rasmus Fatum & Michael M. Hutchison, 2003. "Is sterilised foreign exchange intervention effective after all? an event study approach," Economic Journal, Royal Economic Society, vol. 113(487), pages 390-411, 04. [Downloadable!] (restricted)
    Other versions:
  46. Mark, Nelson C. & Sul, Donggyu, 2001. "Nominal exchange rates and monetary fundamentals: Evidence from a small post-Bretton woods panel," Journal of International Economics, Elsevier, vol. 53(1), pages 29-52, February. [Downloadable!] (restricted)
    Other versions:
  47. Rapach, David E. & Wohar, Mark E., 2002. "Testing the monetary model of exchange rate determination: new evidence from a century of data," Journal of International Economics, Elsevier, vol. 58(2), pages 359-385, December. [Downloadable!] (restricted)
  48. Robert Andrew & John Broadbent, 1994. "Reserve Bank Operations in the Foreign Exchange Market: Effectiveness and Profitability," RBA Research Discussion Papers rdp9406, Reserve Bank of Australia. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michel Beine & Oscar Bernal, 2005. "Why do central banks intervene secretly? Preliminary evidence from the BoJ," Working Papers DULBEA 05-09.RS, Université libre de Bruxelles, Department of Applied Economics (DULBEA). [Downloadable!]
  2. Michel Beine & Paul De Grauwe & Marianna Grimaldi, 2005. "The Impact of FX Central Bank Intervention in a Noise Trading Framework," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
Statistics
Access and download statistics

Did you know? Use the JEL tree to browse through the database by subfields.

This page was last updated on 2008-8-29.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.