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Forward Intervention, Risk Premium and the Fluctuations of International Financial Market

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  • Tseng, Hui-Kuan

    (The University of North Carolina at Charlotte, Department of Economics)

Abstract

The paper examines the effects of forward market intervention on fluctuations of the forward rate, the spot rate and the domestic interest rate in a partial-equilibrium, stochastic model. In contrast to recent work, this paper highlights the role of risk premium iii interpreting why such intervention may or may not serve as an effective instrument of monetary policy from the short-term and long-term perspectives. It shows that forward intervention is desirable only when the destabilizing disturbance originates in the forward exchange market. A general analysis is given without relying on numerical simulation.

Suggested Citation

  • Tseng, Hui-Kuan, 1993. "Forward Intervention, Risk Premium and the Fluctuations of International Financial Market," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 46(2-3), pages 276-287.
    • Handle: RePEc:ris:ecoint:0443
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