Abstract
This paper presents an empirical analysis of central bank intervention during the 10-month period following the Louvre Accord. We first examine whether the Bank of Japan and the Federal Reserve adopted a target zone in order to stabilize the yen–dollar exchange rate, by using daily foreign exchange intervention data. We then estimate the expected future exchange rate and the expected rate of devaluation in order to verify if there was a credible target zone. On the basis of these two tests, we conclude that the central banks did adopt a target zone during the period following the Louvre Accord, but that the target zone for the yen–dollar exchange rate was not credible.
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