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Exchange market intervention under alternative forms of exogenous disturbances

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  • Turnovsky, Stephen J.

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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Suggested Citation

  • Turnovsky, Stephen J., 1984. "Exchange market intervention under alternative forms of exogenous disturbances," Journal of International Economics, Elsevier, vol. 17(3-4), pages 279-297, November.
    • Handle: RePEc:eee:inecon:v:17:y:1984:i:3-4:p:279-297
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    1. Taylor, John B, 1977. "Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations," Econometrica, Econometric Society, vol. 45(6), pages 1377-1385, September.
    2. Boyer, Russell S, 1978. "Optimal Foreign Exchange Market Intervention," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1045-1055, December.
    3. Richard C. Marston, 1983. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc.
    4. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    5. Frenkel, Jacob A. & Aizenman, Joshua, 1982. "Aspects of the optimal management of exchange rates," Journal of International Economics, Elsevier, vol. 13(3-4), pages 231-256, November.
    6. Henderson, Dale W, 1979. "Financial Policies in Open Economies," American Economic Review, American Economic Association, vol. 69(2), pages 232-239, May.
    7. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
    8. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
    9. Brunner, Karl & Meltzer, Allan H., 1977. "Stabilization of the domestic and international economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 1-6, January.
    10. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
    11. Don E. Roper & Stephen J. Turnovsky, 1980. "Optimal Exchange Market Intervention in a Simple Stochastic Macro Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 296-309, May.
    12. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(2), pages 197-216.
    13. Cox, W. Michael, 1980. "Unanticipated money, output, and prices in the small economy," Journal of Monetary Economics, Elsevier, vol. 6(3), pages 359-384, July.
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    Cited by:

    1. Yu-Lin Wang & Hsiu-Yun Lee, 2009. "Rules versus discretion on the choice between exchange-rate-targeting and monetary-aggregate-targeting," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 12(1), pages 43-55.
    2. Turnovsky, Stephen J. & d'Orey, Vasco, 1989. "The choice of monetary instrument in two interdependent economies under uncertainty," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 121-133, January.
    3. Pierre Villa, 1991. "Règles de taux d'intérêt en changes flexibles et en présence de chocs permanents," Revue Économique, Programme National Persée, vol. 42(5), pages 867-900.
    4. Peter J. Stemp, 1991. "Optimal Weights in a Check‐List of Monetary Indicators," The Economic Record, The Economic Society of Australia, vol. 67(1), pages 1-13, March.
    5. Lee, Hsiu-Yun, 2011. "Nonlinear exchange rate dynamics under stochastic official intervention," Economic Modelling, Elsevier, vol. 28(4), pages 1510-1518, July.
    6. repec:bla:ecorec:v:67:y:1991:i:196:p:1-13 is not listed on IDEAS
    7. Keith Pilbeam, 2004. "The stabilization properties of fixed and floating exchange rate regimes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 113-123.

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