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Dual Exchange Markets and Intervention

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  • Pertti Haaparanta

Abstract

It is argued that the theoretical literature on dual exchange markets has completely neglected the form of central bank intervention emphasized by the "classics". They advocated neutral intervention where the central bank sells in the capital market all foreign exchange it acquires from the current transactions. Current literature concentrates on the non-sterilized intervention. In a choice-theoretic framework it is shown that the form of intervention matters very much for the transmission of changes in foreign rate of interest and in terms of trade.

Suggested Citation

  • Pertti Haaparanta, 1986. "Dual Exchange Markets and Intervention," WIDER Working Paper Series wp-1986-006, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-1986-006
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    File URL: https://www.wider.unu.edu/sites/default/files/WP6.pdf
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    References listed on IDEAS

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    1. Obstfeld, Maurice, 1986. "Capital controls, the dual exchange rate, and devaluation," Journal of International Economics, Elsevier, vol. 20(1-2), pages 1-20, February.
    2. Aizenman, Joshua, 1985. "Tariff liberalization policy and financial restrictions," Journal of International Economics, Elsevier, vol. 19(3-4), pages 241-255, November.
    3. Adams, Charles & Greenwood, Jeremy, 1985. "Dual exchange rate systems and capital controls: An investigation," Journal of International Economics, Elsevier, vol. 18(1-2), pages 43-63, February.
    4. Flood, Robert P., 1978. "Exchange rate expectations in dual exchange markets," Journal of International Economics, Elsevier, vol. 8(1), pages 65-77, February.
    5. Marion, Nancy Peregrim, 1981. "Insulation Properties of a Two-Tier Exchange Market in a Portfolio Balance Model," Economica, London School of Economics and Political Science, vol. 48(189), pages 61-70, February.
    6. Robert P. Flood & Nancy Peregrim Marion, 1982. "The Transmission of Disturbances under Alternative Exchange-Rate Regimes with Optimal Indexing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(1), pages 43-66.
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    Cited by:

    1. Aaron Tornell, 1990. "Propiedades aislantes de los tipos de cambio duales: Un modelo neoclásico," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 5(1), pages 125-156.
    2. Yuyan Zhang, 1989. "Economic System Reform in China," WIDER Working Paper Series wp-1989-055, World Institute for Development Economic Research (UNU-WIDER).
    3. Grzegorz W. Kolodko & Marian Ostrowski & Dariusz Rosati, 1990. "Stabilization Policy in Poland: Challenges and Constraints," WIDER Working Paper Series wp-1990-081, World Institute for Development Economic Research (UNU-WIDER).

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