Learning About Intervention Target Zones
This paper provides a framework for evaluating how market participants' beliefs about foreign exchange target zones change as they learn about central bank intervention policy. In order to examine this behavior, we first generalize the standard target zone model to allow for intra-marginal intervention. Intra-marginal intervention implies that the position of market participants' beliefs about the target zone can be determined from their beliefs about the likelihood of intervention. As an application of this model, we estimate a probability of intervention model using daily exchange rates and market observations of central bank interventions following the Louvre Accord. Interestingly, even over this relatively stable Louvre Accord period, we find that the market's views of intervention target zones would have varied quite a bit over time.
|Date of creation:||Apr 1991|
|Date of revision:|
|Publication status:||published as Journal of International Econmics, vol. 35(3-4), pp. 275-295, November 1993|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Klein, Michael W., 1992. "Big effects of small interventions: The informational role of intervention in exchange rate policy," European Economic Review, Elsevier, vol. 36(4), pages 915-924, May.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3674. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.