Journal article
The advantage to hiding one's hand: Speculation and central bank intervention in the foreign exchange market
Journal of monetary economics, Vol.39(2), pp.251-277
07/01/1997
DOI: 10.1016/S0304-3932(97)00019-6
Abstract
We analyze an asymmetric information model of sterilized intervention in the foreign exchange market. We characterize an equilibrium in which a central bank with ‘inside information’ about its exchange rate target trades with risk averse speculators who have private information about future spot rates. The model identifies circumstances in which ‘perverse’ responses to intervention will be observed, i.e. the domestic currency depreciates when the central bank purchases it, and it provides conditions under which the exchange rate will be highly sensitive to intervention. The model also provides an explanation for two forms of ‘policy secrecy’: (i) secrecy about the
scale of an intervention operation is always desirable, (ii) secrecy about the
target is sometimes desirable.
Details
- Title: Subtitle
- The advantage to hiding one's hand: Speculation and central bank intervention in the foreign exchange market
- Creators
- Utpal Bhattacharya - University of IowaPaul Weller - University of Iowa
- Resource Type
- Journal article
- Publication Details
- Journal of monetary economics, Vol.39(2), pp.251-277
- DOI
- 10.1016/S0304-3932(97)00019-6
- ISSN
- 0304-3932
- eISSN
- 1873-1295
- Publisher
- Elsevier B.V
- Number of pages
- 27
- Language
- English
- Date published
- 07/01/1997
- Academic Unit
- Finance
- Record Identifier
- 9984963153602771
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