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Exchange Market Intervention Under Alternative Forms of Exogenous Disturbances

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  • Stephen J. Turnovsky

Abstract

This paper analyzes exchange market intervention in a stochastic model of a small open economy. The distinction is made between disturbances which are unanticipated and anticipated on the one hand, and those that are perceived as being transitory or permanent, on the other. The paper demonstrates how the appropriate form of exchange market intervention is sensitive to these aspects of the disturbances. Of particular interest is the case of an unanticipated permanent disturbance, when output may be stabilized perfectly about its frictionless level by the use of a very simple class of intervention rules.The optimal rules in other cases are also discussed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1289.

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Date of creation: Apr 1985
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Publication status: published as Turnovsky, Stephen J. "Exchange Market Intervention Under Alternative Forms of Exogenous Disturbances." Journal of International Economics, Vol. 17, No. 3/4, (1984), pp. 279-297.
Handle: RePEc:nbr:nberwo:1289

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  1. Jacob A. Frenkel & Joshua Aizenman, 1983. "Aspects of the Optimal Management of Exchange Rates," NBER Working Papers 0748, National Bureau of Economic Research, Inc.
  2. Don E. Roper & Stephen J. Turnovsky, 1980. "Optimal Exchange Market Intervention in a Simple Stochastic Macro Model," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 13(2), pages 296-309, May.
  3. Dale W. Henderson, 1979. "Financial policies in open economies," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 133, Board of Governors of the Federal Reserve System (U.S.).
  4. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, Elsevier, vol. 11(2), pages 139-168.
  5. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers, Board of Governors of the Federal Reserve System (U.S.) 2, Board of Governors of the Federal Reserve System (U.S.).
  6. Boyer, Russell S, 1978. "Optimal Foreign Exchange Market Intervention," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 1045-55, December.
  7. Cox, W. Michael, 1980. "Unanticipated money, output, and prices in the small economy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 6(3), pages 359-384, July.
  8. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, Elsevier, vol. 2(2), pages 221-235, April.
  9. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 2(1), pages 1-32, January.
  10. Taylor, John B, 1977. "Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 45(6), pages 1377-85, September.
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Cited by:
  1. Lee, Hsiu-Yun, 2011. "Nonlinear exchange rate dynamics under stochastic official intervention," Economic Modelling, Elsevier, Elsevier, vol. 28(4), pages 1510-1518, July.
  2. Stemp, Peter J, 1991. "Optimal Weights in a Check-List of Monetary Indicators," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 67(196), pages 1-13, March.
  3. Keith Pilbeam, 2004. "The stabilization properties of fixed and floating exchange rate regimes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 9(2), pages 113-123.
  4. Stephen J. Turnovsky & Vasco d'Orey, 1988. "The Choice of Monetary Instrument in Two Interdependent Economies Under Uncertainty," NBER Working Papers 2604, National Bureau of Economic Research, Inc.

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