Foreign Exchange Intervention: Theory and Evidence

Abstract

Part 1 Introduction: introduction and outline the foreign exchange market central bank intervention. Part 2 Theories on the scope for foreign exchange intervention: introduction the flow approach to exchange rate determination the asset-market approach to exchange rate determination alternative approaches to the study of foreign exchange intervention conclusions. Part 3 Empirical investigations into the objectives and effectiveness of intervention - a survey: introduction objectives of intervention effectiveness of intervention conclusions. Part 4 Objectives of daily Bundesbank and Federal Reserve intervention in the DM/$ market - part 1: introduction stated objectives of intervention estimating the basic intervention reaction function of the Bundesbank and the Federal Reserve system the reaction towards anticipated exchange rate volatility the intervention reaction function estimated as a Tobit model conclusions appendix 4.1 - GARCH models and exchange rate policy appendix 4.2 - technical details of Tobit analysis. Part 5 Objectives of daily Bundesbank and Federal Reserve intervention in the DM/$ market - part 2: introduction the model the data estimation and results conclusions. Part 6 Effectiveness of daily Bundesbank and Federal Reserve intervention in the DM/$ market: introduction modelling the effectiveness of foreign exchange intervention the simultaneity problem testing for simultaneity between exchange rates and intervention estimating the effect of intervention on the level of the DM/$ rate conclusions. Part 7 A positive theory of central bank intervention: introduction central bank intervention as a deterministic game against nature central bank intervention as a stochastic game against nature intervention as a game against rational market participants extensions of the game against rational speculators conclusions appendix 7.1 - a standard static monetary policy game. Part 8 Summary and concluding remarks.