dynamic efficiency in overlapping generations models with stochastic production abstract we consider an overlapping generations economy as in diamond amer econ rev 55 1965 1126 1150 with stochastic production we define two types of efficiency for feasible production consumption allocations using first and second degree stochastic dominance we obtain a complete characterization of inefficiency of type i in this model for each given sequence of strictly concave utility functions for all generations the existence of a competitive equilibrium is proved it is shown that each competitive allocation is short run efficient of type ii

official intervention in the foreign exchange market in an article in this journal dean taylor 1982 proposes a simple statistical test of the significance of central bank losses in the exchange market would random intervention be likely to result in as large a loss this comment shows that as it stands his test statistic does not allow properly for the effect of the mean level of intervention there is in fact an element of ambiguity in the question taylor poses and this is illustrated with examples taken from his empirical work the connection between the taylor test and regression analysis is noted and explored

a positive theory of social security based on reputation we construct a general equilibrium model in which a pay as you go social security system can be adopted and sustained as a political and economic equilibrium we alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness

official intervention in the foreign exchange market or bet against the central bank evaluating official foreign exchange intervention during the 1970s using friedman s profit criterion shows that central banks have failed to stabilize the exchange markets and have lost billions of dollars the monetary authorities have resisted rate movements which results in a misallocation of resources when there is a shift in the equilibrium exchange rate counterspeculation by exchange traders reduces the destabilizing effect of central bank intervention and the consequent loss in economic welfare

relationships among exchange rates intervention and interest rates an empirical investigation abstract this study uses herefore unavailable daily data on official intervention to test the joint hypotheses of perfect asset substitutability and exchange market efficiency this joint hypothesis is generally soundly rejected for six exchange rates over various sample periods in contrast to evidence elsewhere from weekly or monthly data lagged intervention is a significant determinant of realized profits in about half the cases this evidence is consistent with existence of a portfolio balance channel at least in the short run other evidence indicates that coordinated intervention sometimes may have an impact significantly different from intervention by one central bank alone

foreign exchange intervention how to signal policy objectives and stabilise the economy abstract within a simple model of monetary policy for an open economy we study how foreign exchange intervention may be used as a costly signal of the policy makers objectives our analysis indicates that i foreign exchange intervention typically stabilises the national economy reducing the fluctuations of employment and output ii this result is sensitive to the institutional structure of decision making in that a larger stability gain is obtained when foreign exchange intervention and monetary policy are kept under the jurisdiction of different governmental agencies

post plaza intervention in the dem usd exchange rate in this paper whether specific methods of conducting central bank interventions in crease the likelihood of achieving its objectives in analysed daily bundesbank and fed inter vention data covering the entire post plaza period are used to estimate binary choice models over the sample of observations when at least one of the two central banks were intervening the results suggest that central banks can in fact improve the likelihood of success primarily through coordination and that unilateral intervention conducted by the bundesbank appears to have been destabilizing furthermore it is shown that relatively infrequent intervention has a

pareto improving social security reform when financial markets are incomplete this paper studies an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system leads to a pareto improvement when returns to capital and wages are imperfectly correlated a system that endows retired households with claims to labor income enhances the sharing of aggregate risk between generations our quantitative analysis shows that abstracting from the capital crowding out effect the introduction of social security represents a pareto improving reform even when the economy is dynamically efficient however the severity of the crowding out effect in general equilibrium tends to overturn these gains

intergenerational risk sharing via social security when financial markets are incomplete this paper develops an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system can lead to a pareto improvement even if the initial equilibrium is neither production ine cient in the spirit of diamond 1965 nor dynamically ine cient in the spirit of samuelson 1957 when returns to capital and wages are imperfectly correlated and subject to aggregate shocks then the consumption variance of all generations can be reduced if private markets or government policies enable them to pool their labor and capital incomes a social security system that endows retired households with a claim to labor income may serve as an e ective tool to share aggregate risk between gener

redesigning cooperative boundaries the emergence of new models in a mid 1990s aaea invited paper session the presenters and discussants posited challenges and opportunities for agricultural cooperation fulton hypothesized that forces external to the cooperative especially technology and member individualism would increasingly emerge as obstacles to success in north american agricultural cooperatives cook hypothesized forces internal to the cooperative especially potential negative consequences of vaguely defined property rights would challenge cooperative organizational growth in subsequent years three strategic choices were identified as potentially efficient that is the option to exit either the sector or the organizational form to continue strategically and structurally with moderate changes to organization form or to shift to a more radical form of organizational structure this article and session attempt to describe and analyze organizational design initiatives adopted since the mid 1990s this article complements and expands a typology of discrete institutional arrangements i e cooperative models based upon a broad definition of ownership rights comprising residual claim and control rights chaddad and cook we argue that cooperative models may be distinguished by how ownership rights are defined and assigned to economic agents tied contractually to the firm members patrons and investors in addition we develop a set of observations that suggest a research agenda based on a new institutional approach

the cyclical and secular behaviour of the labour input comparing efficiency units and hours worked summary a monthly labour input series designed to correct for the fact that all hours worked are not of the same quality is constructed and its properties compared with unadjusted hours worked this efficiency units series is constructed from bls data on hours worked and earnings by age and sex the cyclical fluctuations displayed by the efficiency units series are smaller on average than those displayed by hours worked although the difference is not large however the secular behaviour of the series is quite different hours worked per capita displays a significant positive trend while efficiency units per capita does not

does the fed beat the foreign exchange market abstract this paper s estimates and tests of fed intervention profits are the first that explicitly adjust for foreign exchange risk premia failure to adjust may grossly affect estimated profits profits appear economically and statistically significant whether risk premia are modeled as time constant or as appreciation s market beta depending on fed intervention the estimates are sensitive to the method of risk adjustment and to the periods used because a key variable cumulative intervention is i 1 test statistics may have non standard distributions a problem affecting past tests this paper s tests account for non standard distributions possible explanations of these profits have mixed empirical support in the literature

the profitability of us intervention in the foreign exchange markets abstract using a formula for intervention profits in which profitability measured as of date t depends on how well intervention operations predict ex post deviations from interest parity this paper shows that us intervention since the beginning of generalized floating in 1973 has earned profits for the us monetary authorities fundamental explanations for the profitability of us intervention are difficult to isolate but statistical tests suggest that it is unlikely the profits are merely the outcome of chance or a normal return to bearing time invariant risk

existence and local uniqueness of functional rational expectations equilibria in dynamic economic models abstract this paper established the existence and local uniqueness of stationary functional rational expectations equilibria for an open set of multi good multi agent pure exchange overlapping generations models in which agents endowments are random such equilibria are given by prices which are functions of one period lagged prices and endowments and of current endowments

common stochastic trends in a system of exchange rates univariate tests reveal strong evidence for the presence of a unit root in the univariate time series representation for seven daily spot and forward exchange rate series furthermore all seven spot and forward rates appear to be cointegrated that is the forward premiums are stationary and one common unit root or stochastic trend is detectable in the multivariate time series models for the seven spot and forward rates respectively this is consistent with the hypothesis that the seven exchange rates possess one longrun relationship and that the disequilibrium error around that relationship partly accounts for subsequent movements in the exchange rates a general consensus has emerged in recent years that many macroeconomic time series such as gnp consumption expenditures disposable income etc can be characterized by a stochastic trend model in particular nelson and plosser 22 described this property as one of being difference stationary so that the first difference of a time series is stationary an alternative trend stationary model where a stationary component is added to a deterministic trend term has generally been found to be less appropriate 1 similarly it has long been recognized that many financial time series such as foreign exchange rates are nonstationary e g in meese and singleton 21 the issue of nonstationary is not merely a statistical curiosity but has several important implications for the modeling of exchange rates for instance many models of exchange rate determination under rational expectations require stationarity assumptions when solving out the expected future values of the fundamentals further there has been some controversy over the appropriate transformations to use when conducting tests of whether the forward rate is an unbiased and efficient predictor of the future spot exchange rate 2 some authors e g frenkel 11 12 have conducted tests in levels while geweke and feige 14

beating the foreign exchange market filter rule profits found in foreign exchange markets in the early days of the current managed float persist in later periods as shown by statistical tests developed and implemented here the test is consistent with but independent of a wide variety of asset pricing models the profits found cannot be explained by risk if risk premia are constant over time inclusion of the home foreign interest rate differential in computing profits has little effect on the comparison of filter returns to those of buy and hold in the early years of the generalized managed floating that began in march 1973 filter rule profits in excess of buy and hold were found for many countries logue sweeney and willett 18 dooley and shafer 6 cornell and dietrich 5 it was unclear however whether such profits indicated inefficiencies first it was not clear that risk was adequately handled in such tests and often risk was ignored second there was no evidence such profits would be available postsample and third there was no statistical test of the significance of these profits this paper uses the logic of risk return tradeoffs to analyze the role of risk in such tests and illustrates the logic in a discussion using the sharpe lintner capital asset pricing model capm although a breeden consumption based capm a merton intertemporal capm or an arbitrage pricing model apm could easily be used the paper develops a test of statistical significance appropriate to foreign exchange markets section i analyzing the rate of return on foreign exchange speculation less the foreign domestic interest rate differential the test explicitly assumes that risk premia are constant over the sample the excess rates of return observable in using filters in going from a risk free dollar asset to a risk free deutsche mark dm asset persist into the 1980 s section ii and this is true even when taking account of transactions costs it turns out that these results for the dm case do not depend very much on the interestrate differential but primarily on exchange rate behavior this is useful to know because it is often quite difficult to find matching interest rate data of high quality for a sample of nine other currencies using only exchange rates section iii shows that the excess returns made in the first 610 days of the float persist in the next 1 220 days into the 1980 s dooley and shafer 7 find similar persistence in experiments that do not use buy and hold and have no significance tests when filter rule profits have been found in spot exchange markets it has often been argued that the profits are due to risk this paper uses the capm to analyze rates of return both to buy and hold and to filter strategies it turns out that the claremont mckenna college and claremont graduate school arthur d warga douglas joines and thomas d willett offered helpful comments and ning ning koo provided research assistance

cooperatives and contracting in agriculture the case of west liberty foods the west liberty foods turkey cooperative was formed in 1996 to purchase the assets and assume operations of louis rich foods an investor owned processing firm which at the time announced the imminent shutdown of its west liberty iowa processing facility we study the creation and performance of this new generation cooperative using field interviews with grower members and company management we describe changes before and after the buyout in the contractual apparatus used for procuring live turkeys and in the communication requirements work expectations and financial positions of growers during the private ownership period most of the inputs except labor and facilities were provided by the firm there was substantial supervision of the growers actions growers faced little price and production risk and growers equity was due largely to ownership of land and other farm assets our interviews reveal that after cooperative formation growers were exposed to considerable additional risk monitoring of growers by the firm was less intensive grower time and effort commitments to turkey production increased substantially and a significant fraction of firm cooperative equity came from growers willingness to leverage their farm and personal assets and hence indirectly their existing relationships with local lenders we argue that some of these changes are consistent with a financial contract where asset pledging and its corollary risk generate higher work effort by growers and a reduction in agency rents these economies likely compensate for an organizational deadweight loss traditionally associated with cooperative governance

why do central banks intervene abstract intervention by central banks in terms of buying and selling foreign currency has been a major activity in recent years this paper investigates the motivations for such policy and the evidence for its effectiveness we use high quality daily data on the dollar amounts of intervention by the central banks of the us and germany we also use information on agreed g7 target levels for the dm and yen nominal exchange rates daily nominal dollar exchange rate returns are well described as a martingale garch process and we find little evidence that the different types of intervention have had much effect on the conditional mean of exchange rate returns there is some evidence that intervention is associated with slight increases in the volatility of exchange rate returns while little evidence is found for the effectiveness of intervention the motivations are more clear in particular from the application of probit analysis we find that the probability of intervention is determined by the magnitude of the deviation of the nominal exchange rate from the agreed target level and to a lesser extent by the current volatility of exchange rates

exchange rate speculation and chaos inducing intervention abstract we show that in a market characterized by high volatility transactions designed to have a stabilizing effect may inadvertently induce chaos in the foreign exchange market for example excessive interventions by a central bank may lead to an increase in erratic behavior rather than to the calming of exchange rate movements

does social security privatization produce efficiency gains while privatizing social security can improve labor supply incentives it can also reduce risk sharing we analyze a 50 privatization using an overlapping generations model where heterogeneous agents with elastic labor supply face idiosyncratic earnings shocks and longevity uncertainty when wage shocks are insurable privatization produces about 18 100 of extra resources for each future household after all transitional losses have been compensated for with lump sum taxes when wages are not insurable privatization reduces efficiency by about 2 400 per future household we check the robustness of these results to different model specifications as well as policy reforms and arrive at several surprising conclusions first privatization performs better in a closed economy where interest rates decline with capital accumulation than in an open economy second privatization also performs better when an actuarially fair private annuity market does not exist third government matching of private contributions on a progressive basis is not very effective at restoring efficiency and can actually cause harm

the cost of a central bank leaning against a random walk abstract using a stochastic model we show that a central bank is expected to suffer a loss when it temporarily affects the exchange rate by sterilized intervention against a random walk we also demonstrate that the methodology used in several studies of the profitability of official central bank intervention biases their results towards finding positive profits this bias created by only observing periods where cumulative intervention sums to zero accounts for the seemingly contradictory empirical results of several intervention profitability studies

the future of u s agricultural cooperatives a neo institutional approach thirty years ago helmberger speculated that industrialization of agriculture would lead to the demise of farmer cooperatives helmberger 1966 p 1434 in responding to helmberger s prediction abrahamsen countered by suggesting that as industrialization of agriculture evolved cooperatives would increasingly become the farmer s integrating agency abrahamsen p 1442 in this paper i examine these two divergent opinions by a briefly describing the structural and strategic evolution of u s farmer cooperatives since the helmberger and abrahamsen h a forecasts b utilizing recent developments in neo institutional economic organizational economic theory to generate hypotheses regarding structural and strategic shifts in u s agricultural cooperatives and c further applying neo institutional economics to speculate what the future might hold for u s producerowned and controlled agricultural cooperatives

central bank intervention and exchange rate volatility abstract this paper explores the effects of foreign exchange intervention by central banks on the behavior of exchange rates the g 3 central banks have undertaken an unprecedented number of both coordinated and unilateral intervention operations in the last 10 years existing empirical evidence on the effectiveness of intervention is mixed studies using data from the 1970s suggest that intervention operations that do not affect the monetary base have at most a short lived influence on exchange rates but more recent studies indicate that the intervention operations that followed the plaza agreement influenced both the level and variance of exchange rates this paper examines the effects of us german and japanese monetary and intervention policies on dollar mark and dollar yen exchange rate volatility over the 1977 1994 period the results indicate that intervention operations generally increase exchange rate volatility this is particularly true of secret interventions which are those undertaken by central banks without notification of the public overt interventions in the mid 1980s appear to have reduced exchange rate volatility but in other periods and for the 1977 1994 period as a whole central bank intervention is associated with greater exchange rate volatility

do central banks lose on foreign exchange intervention a review article abstract estimates of central bank intervention losses or profits vary widely some estimates find substantial losses others profits in most cases estimated profits are not risk adjusted and risk adjustment can have large effects furthermore profit estimates involve variables integrated of order one and because of this test statistics may have nonstandard distributions few studies take this into account estimates of risk adjusted profits for the us fed and the swedish riksbank with allowances for possible nonstandard distributions suggest that neither made losses and might have made significant profits

how to make the central bank look good in a comment on my article taylor 1982b that uses friedman s 1953 profit criterion to evaluate official foreign exchange intervention peter spencer 1985 proposes an alternative criterion for measuring the success of intervention that deducts the effect of the mean level of intervention his criterion is seriously flawed by a strong positive bias in favor of the central bank if it pursues a policy of leaning against the wind this reply uses a stochastic model that assumes that the exchange rate follows a random walk and that the central bank leans against the wind although this is a fair game with the expected profit equal to zero spencer s criterion is biased to show positive results for the central bank approximately 96 percent of the time in addition his empirical results are exaggerated by his misinterpretation of his test statistic as the slope coefficient for a regression with a constant the model s assumptions that exchange rate changes are independent and that the central bank leans against the wind are empirically good first approximations evidence on the independence of exchange rate changes is provided in studies such as levich 1978 mussa 1979 frenkel 1981 and dooley and shafer 1984 which show that the random component of exchange rate changes overwhelmingly dominates any systematic behavior in exchange rate movements evidence presented in taylor 1982a shows that central banks lean against the wind by selling dollars when the price of the i am indebted to howard stratton and charles corrado for helpful suggestions and help with the simulations i have also benefited from comments from peter spencer michael bordo michael connolly todd sandler sam peltzman and a referee of course they are not responsible for any remaining errors

does foreign exchange intervention matter the portfolio effect until recently there was an unusual degree of consensus among economists that intervention by central banks in the foreign exchange market did not offer an effective or lasting instrument for affecting the exchange rate at least not independently of monetary policy this consensus was largely shared among policymakers and participants in the financial markets as well the 1982 g 7 economic summit at versailles commissioned a study of intervention known as the jurgenson report which found that the effects were small and transitory at most we think that the time is ripe for new statistical testing of the question many policymakers and foreign exchange traders believe that the intervention operations that have taken place since the plaza agreement of september 1985 have had an effect especially when operations are coordinated moreover the theoretical case against the effectiveness of intervention is not as clear as a reading of the economics literature might suggest the academic literature is predicated on the distinction between intervention operations that are sterilized and those that are allowed to affect the money supply we study the intervention operations that actually took place between 1982 and 1988 regardless of whether they were sterilized however we do begin in section i with a review of the issues involved 2 there are two possible channels through which intervention whether sterilized or not can influence the foreign exchange rate the portfolio and the expectations channels intervention can even if sterilized influence exchange rates through the portfolio channel provided foreign and domestic bonds are considered imperfect substitutes in investors portfolios intervention operations that for example increase the current relative supply of mark to dollar assets which private investors are obliged to accept into their portfolios will force a decrease in the relative price of mark assets 3 intervention can also influence exchange rates regardless of whether foreign and domestic bonds are imperfect substitutes through the expectations channel the public information that central banks are intervening in support of a currency or are planning to intervene in the future may under certain conditions cause speculators to expect an increase in the price of that currency in the future speculators react to this information by buying the currency today bringing about the change in the exchange rate today in sections ii and iii we describe the econometric problems that arise in the standard portfolio balance estimation equation we derive an alternative portfolio balance dominguez kennedy school of government harvard university 79 j f kennedy street cambridge ma 02138 frankel department of economics university of california 787 evans hall berkeley ca 94720 we thank three anonymous referees for valuable comments and suggestions julia marsh and julia lowell for research assistance and franz scholl at the bundesbank jean pierre roth at the swiss national bank and officials at the u s treasury and the board of governors of the federal reserve system for making the daily intervention data available 1many of the econometric results finding little or no effect were reported in kenneth s rogoff 1984 and dale w henderson and stephanie sampson 1983 2for authoritative statements see henderson 1984 or maurice obstfeld 1990 3the exchange rate reaction to an increase in the relative supply of outside foreign assets may be reduced if there is an increase in their expected rate of return that induces a corresponding increase in demand

cointegration fractional cointegration and exchange rate dynamics multivariate tests due to johansen 1988 1991 as implemented by baillie and bollerslev 1989a and diebold gardeazabal and yilmaz 1994 reveal mixed evidence on whether a group of exchange rates are cointegrated further analysis of the deviations from the cointegrating relationship suggests that it possesses long memory and may possibly be well described as a fractionally integrated process hence the influence of shocks to the equilibrium exchange rates may only vanish at very long horizons in the article by baillie and bollerslev 1989a it is argued that seven different nominal spot and forward exchange rates all contain unit roots in their univariate time series representations at the same time however the spot exchange rates appear to be tied together in the long run through a cointegration type relationship the latter finding of baillie and bollerslev has attracted particular interest and several studies such as those by hakkio and rush 1991 and sephton and larsen 1991 have already addressed this issue using the same data as the baillie and bollerslev article sephton and larsen 1991 describe the evidence for the presence of cointegration as being fragile and note that mixed conclusions are reached by truncating the baillie and bollerslev sample at different points in time diebold gardeazabal and yilmaz 1994 henceforth diebold et al provide interesting evidence that application of the johansen 1988 1991 tests with and without an intercept will result in different inferences on the baillie and bollerslev data set furthermore diebold et al carry out an ex ante forecasting experiment and find that the addition of an error correction term to the martingale model as implied by the standard cointegration paradigm fails to reduce the prediction mean square error when compared to a simple martingale model this therefore leads diebold et al to conclude that there exists substantial uncertainty regarding the existence of cointegration relationships among nominal dollar exchange rates this article provides some additional evidence on the existence of such a long run relationship among the same seven nominal spot exchange rates after further analysis it appears that a form of cointegration does exist between the exchange rates so that they do not drift apart in the long run we argue that this form of cointegration is

measurement error and the profitability of interventions a closer look at snb transactions data abstract several studies argue that central bank profits from foreign exchange interventions should be calculated using daily data the rationale is that intra month exchange rate volatility is larger than the intra day volatility this note tests this hypothesis with transactions data

standard errors in event studies even if true abnormal returns are uncorrelated estimated abnormal returns are not this paper presents a simple formula for the variance of estimated cumulative abnormal re turns both returns and dummy variable procedures for estimating the standard error correctly taking account of both intertemporal and contemporaneous correlation of esti mated residuals are discussed they are then applied to an event study of post merger performance it is shown that ignoring either the intertemporal or contemporaneous correlation of residuals can result in significant underestimates of standard errors

the health of farmer based organisations in ghana organisational diagnostics and governance implications abstractin this paper we use primary data on 500 ghanaian fbos collected through semi structured interviews and risky dictator games rdg to test the validity of the cooperative life cycle theory and formulate a measure of cooperative health we first define cooperative health as the alignment of heterogeneity in risk preferences and the effectuation of collective investments we then use cluster and correlation analysis to categorize fbos on the basis of their health and correlate these typologies with various performance indicators our findings reveal that organizational health is generally low as there are only a few organizations that manage to provide member farmers with both risk sharing and cost saving opportunities further healthier fbos experience stronger growth in membership while health is lower in fbos that have been established for the purpose of benefitting from external incentives

is intervention a signal of future monetary policy evidence from the federal funds futures market sterilized foreign exchange market intervelltioll may affect the exchange rate if it signals future monetary policy actions sigllaling will be effective if the celltral bank backs up interventioll with predictable changes in the stance of molletary policy and in turn affects currellt expectations we investigate whether illtervention operations in the united states are lelated to changes in expectatiolls over the stance of future monetary policy whele expectations are proxied by ifederal funds futures rates this relatively new futures market instrument has proved to be all efficiellt and ullbiased predictor of the future spot federal funds rate estimates obtained from a garch time series model over the l 989 93 period using daily data do not suppol1 the signalillg hypothesis dollar suppolt intervention is not related to a rise in expected future short term interest ates monetary tightening however intervention appears to significantly increase the conditional variance of federal funds futures rates suggesting that it adds considerable noise to the market alld possibly increasing the degree of uncertainty ovet the future course of molletary policy the effect of foreign exchange market intervention on exchange rates is a subject of continuing controversy few doubt that unsterilized intervention may affect nominal exchange rates by changing interest rates and monetary aggregates however the effect of sterilized intervention on exchange rates is less clear the portfolio balance channel through which sterilized intervention changes the currency denomination of relative asset supplies and thereby the exchange risk premium if assets are imperfect substitutes has received little empirical support for example rogoff 1984 humpage 1991 edison 1993 sweelaey 1995

are forign exchange intervention and monetary policy related and does it really matter the relationship between foreign exchange intervention and monetary policy underlies the question of whether sterilized interventions can affect the exchange rate in this article the author examines this relationship using data on u s foreign exchange interventions from 1985 to 1990 recently made publicly available she examines whether interventions could be viewed as signaling changes in future monetary policy variables the author also considers whether changes in monetary policy may induce interventions in an effort by central bankers to lean against the wind of exchange rate movements interestingly she finds evidence both that interventions help predict monetary policy variables and that monetary variables help predict interventions copyright 1995 by university of chicago press

risk sharing and efficiency implications of progressive pension arrangements the present paper aims to quantify the welfare effects of progressive pension arrangements in germany starting from a purely contribution related benefit system we introduce basic allowances for contributions and a flat benefit fraction since our overlapping generations model takes into account variable labor supply borrowing constraints as well as stochastic income risk we can compare the labor supply the liquidity and the insurance effects of the policy reform our simulations indicate that for a realistic parameter combination an increase in pension progressivity would yield an aggregate efficiency gain of more than 2 percent of resources however such a reform would not be implemented because it would not find political support of the currently living generations

the foreign exchange costs of central bank intervention evidence from sweden abstract this study presents evidence on risk adjusted profits for the swedish central bank estimated profits can be quite sensitive as to whether rates of return are risk adjusted or not and how the risk adjustment is done various ways of adjusting for abnormal returns and extracting buy sell signals are tried results on daily data support the view that riksbank intervention did not make risk adjusted losses over the period 1986 1990 the results might be challenged as arising from inappropriate risk adjustment

how to make the central bank look good a reply in his original 1982 paper dean taylor proposes a simple test of the significance of central bank losses in the exchange market would random intervention be likely to result in as large a loss my comment spencer 1985 took his model at face value but showed that his test statistic was misspecified and that the question he posed was ambiguous yielding two alternative criteria in his comment this issue taylor has shown that if in fact central banks lean into the wind then one of these criteria is biased but this analysis raises a general question about the use of profitability indicators it shows that the conditional nature of these calculations makes them unstable and prone to manipulation when central banks lean into the wind