IDEAS home Printed from https://ideas.repec.org/p/unc/dispap/204.html
   My bibliography  Save this paper

The Scope For Foreign Exchange Market Interventions

Author

Listed:
  • Peter Bofinger

Abstract

The discussion on exchange rate policy is dominated by the so-called “impossible trinity”. According to this principle an autonomous monetary policy, a control over the exchange rate and free capital movements cannot be achieved simultaneously. In this paper, a strategy of managed floating is developed that allows transforming the “impossible trinity” into a “possible trinity”. If a central bank targets an exchange rate path which is determined by uncovered interest parity (UIP), it can at the same time set its policy rate autonomously. As a UIP path removes the incentives for carry-trade, it is also compatible with capital mobility. The approach can be used unilaterally to prevent carry trade as a central bank can always prevent an appreciation of its currency. But it can also be applied bilaterally or multilaterally. Successful examples are the European Monetary System and the exchange rate policy of Slovenia before its EMU membership.

Suggested Citation

  • Peter Bofinger, 2011. "The Scope For Foreign Exchange Market Interventions," UNCTAD Discussion Papers 204, United Nations Conference on Trade and Development.
  • Handle: RePEc:unc:dispap:204
    as

    Download full text from publisher

    File URL: http://www.unctad.org/en/PublicationsLibrary/osgdp20114_en.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2010. "International Government Debt," Business School Working Papers 2010-03, Universidad Torcuato Di Tella.
    2. Lucas Assuncao & ZhongXiang Zhang, 2002. "Domestics Climate Change Policies And The Wto," UNCTAD Discussion Papers 164, United Nations Conference on Trade and Development.
    3. Marwan Elkhoury, 2007. "Credit Rating Agencies And Their Potential Impact On Developing Countries," UNCTAD Discussion Papers 186, United Nations Conference on Trade and Development.
    4. Robert Rowthorn & Ken Coutts, 2004. "De-industrialisation and the balance of payments in advanced economies," Cambridge Journal of Economics, Oxford University Press, vol. 28(5), pages 767-790, September.
    5. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
    6. Mehdi SHAFAEDDIN, 2000. "What Did Frederick List Actually Say? Some Clarifications On The Infant Industry Argument," UNCTAD Discussion Papers 149, United Nations Conference on Trade and Development.
    7. Ugo Panizza, 2008. "Domestic And External Public Debt In Developing Countries," UNCTAD Discussion Papers 188, United Nations Conference on Trade and Development.
    8. Charles Freedman & Douglas Laxton, 2009. "Why Inflation Targeting?," IMF Working Papers 09/86, International Monetary Fund.
    9. Alberto Gabriele, 2004. "Policy Alternatives In Reforming Power Utilities In Developing Countries: A Critical Survey," UNCTAD Discussion Papers 168, United Nations Conference on Trade and Development.
    10. Martina Metzger, 2008. "Regional Cooperation And Integration In Sub-Saharan Africa," UNCTAD Discussion Papers 189, United Nations Conference on Trade and Development.
    11. Yuefen Li, 2003. "China´S Accession To Wto: Exaggerated Fears?," UNCTAD Discussion Papers 165, United Nations Conference on Trade and Development.
    12. S.M. Shafaeddin, 2002. "The Impact Of China´S Accession To Wto On The Exports Of Developing Countries," UNCTAD Discussion Papers 160, United Nations Conference on Trade and Development.
    13. Heiner FLASSBECK, 2002. "The Exchange Rate: Economic Policy Tool Or Market Price?," UNCTAD Discussion Papers 157, United Nations Conference on Trade and Development.
    14. Michael Geiger, 2008. "Instruments Of Monetary Policy In China And Their Effectiveness: 1994–2006," UNCTAD Discussion Papers 187, United Nations Conference on Trade and Development.
    15. S.M. Shafaeddin, 2005. "Trade Liberalization And Economic Reform In Developing Countries: Structural Change Or De-Industrialization?," UNCTAD Discussion Papers 179, United Nations Conference on Trade and Development.
    16. B. Andersen, & Z. Kozul-Wright & R. Kozul-Wright, 2000. "Copyrights, Competition And Development: The Case Of The Music Industry," UNCTAD Discussion Papers 145, United Nations Conference on Trade and Development.
    17. Shigehisa Kasahara, 2004. "The Flying Geese Paradigm: A Critical Study Of Its Application To East Asian Regional Development," UNCTAD Discussion Papers 169, United Nations Conference on Trade and Development.
    18. Alberto GABRIELE, 2001. "Science And Technology Policies, Industrial Reform And Technical Progress In China. Can Socialist Property Rights Be Compatible With Technological Catching Up?," UNCTAD Discussion Papers 155, United Nations Conference on Trade and Development.
    19. Sebastian Dullien, 2009. "Central Banking, Financial Institutions And Credit Creation In Developing Countries," UNCTAD Discussion Papers 193, United Nations Conference on Trade and Development.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:unc:dispap:204. 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: (Joerg Mayer). General contact details of provider: http://edirc.repec.org/data/unctach.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.