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Leaning Against the Wind: Do Central Banks Necessarily Lose?

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  • Carlson, J.A.
  • Kim, I.

Abstract

A leaning-against-the-wind intervention that has only a temporary effect on the exchange rate and that is not too aggressive can be shown analytically to yield positive expected profits to a central bank even when the exchange-rate process is nonstationary. These profits arise if there are some transitory shocks to the exchange rate. Furthermore, very aggressive intervention will yield positive expected profits eventually when there is a tendency for exchange rates to return to a long-run equilibrium level. Copyright 1994 by Blackwell Publishing Ltd.
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Suggested Citation

  • Carlson, J.A. & Kim, I., 1994. "Leaning Against the Wind: Do Central Banks Necessarily Lose?," Papers 94-009, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
  • Handle: RePEc:fth:purkib:94-009
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    banks;

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