Download This PaperIntervention in the Foreign Exchange Market in a Model with Noise Traders
38 Pages Posted: 24 Aug 2007
Date Written: August 2003
Abstract
In this paper we analyze the effectiveness of sterilized interventions in the foreign exchange market. We use a model in which chartists and fundamentalists interact. This model produces speculative noise which leads to systematic deviations of the exchange rate from its fundamentals. In such an environment, interventions can be effective in reducing the noise. It does this by reducing the profitability of noise trading.
Suggested Citation: Suggested Citation
Paul De Grauwe (Contact Author)
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Poschinger Str. 5
Munich, DE-81679
Germany
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Official Intervention in the Foreign Exchange Market: Is it Effective, and, If so, How Does it Work?
By Mark P. Taylor and Lucio Sarno
-
By Gabriele Galati and William R. Melick
-
U.S. Intervention: Assessing the Probability of Success
By Owen Humpage
-
Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?
-
Is Foreign Exchange Intervention Effective?: The Japanese Experiences in the 1990s
-
Does Foreign Exchange Intervention Signal Future Monetary Policy?
By Graciela Kaminsky and Karen K. Lewis
-
The Practice of Central Bank Intervention: Looking Under the Hood
-
Is Sterilized Foreign Exchange Intervention Effective after All? An Event Study Approach
By Rasmus Fatum and Michael M. Hutchison