Abstract
The Louvre Accord resulted in an agreement among central banks to stabilize exchange rate movements. This study assesses how foreign exchange market participants reacted to the agreement. Specifically, we analyze actual volatilities and anticipated volatilities implied from currency option premia during a two-year period surrounding the Accord. We find that volatility, whether actual or anticipated, is not tempered in the post-Accord period. Thus, the Accord was unsuccessful as a cooperative international effort to reduce exchange rate volatility. Implications of this finding for stabilization policy are offered.
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