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

  • Christopher J. Neely

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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File URL: http://research.stlouisfed.org/wp/2004/2004-031.pdf
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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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