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

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  • Christopher J. Neely

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.

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Bibliographic Info

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

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Date of creation: 2005
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Handle: RePEc:fip:fedlwp:2004-031

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Keywords: Foreign exchange;

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References

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Cited by:
  1. Stefan Reitz & Jan C. Rülke & Mark P. Taylor, 2011. "On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates," The Economic Record, The Economic Society of Australia, vol. 87(278), pages 465-479, 09.
  2. Beine, Michel & Grauwe, Paul De & Grimaldi, Marianna, 2009. "The impact of FX central bank intervention in a noise trading framework," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1187-1195, July.
  3. Michel Beine & Oscar Bernal Diaz, 2007. "Why do Central Banks intervene secretly ?preliminary evidence of the BoJ," ULB Institutional Repository 2013/10421, ULB -- Universite Libre de Bruxelles.

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