exchange rate effects of financial regulations abstract in this paper we analyze the effects of financial constraints on the exchange rate through the portfolio balance channel we use a sharp policy discontinuity within the colombian financial system to empirically test for the portfolio balance channel using high frequency data during the period of 2004 2015 our findings suggest that the effects on the exchange rate are short lived and significant only when banking constraints are binding to understand the mechanism behind this result we construct a tractable two period general equilibrium model in which banking limits on foreign holdings inhibit capital flows when these limits bind departures from the uncovered interest rate parity enable sterilized foreign exchange interventions to influence the exchange rate

foreign exchange market intervention and expectations the yen dollar exchange rate abstract using press reports and official statistics on central bank intervention in conjunction with options market data we find that central bank intervention had no statistically significant systematic impact on the mean or higher moments of the exchange rate during 1993 2000 we also find that japanese authorities appeared to intervene mainly in response to deviations of the exchange rate from some implicit target levels and to a rise in market uncertainty u s monetary authorities intervened only in cooperation with the japanese authorities

judo economics in markets with asymmetric firms abstract i study a market entry game with price competition and perfectly substitutable products limiting the initial capacity judo economics is a plausible entry strategy i show that under asymmetry in production cost or product quality capacity limitation can become obsolete

a stopping time approach to assessing the effectiveness of foreign exchange intervention an application to japanese data abstract i propose a new methodology to assess the effect of foreign exchange fx intervention based on the probability of an fx rate reaching the variable is the probability of an fx rate reaching a particular threshold before reaching another importantly the probability depends on not only the level but also the trend and volatility of a current fx rate when an intervention changes the probability in a desired direction the intervention is effective the notable feature of the probability is that it considers both the level and volatility of an fx rate comprehensively while previous studies have examined these effects of fx intervention separately empirical results based on regression and nearest neighbor analyses applied to japanese data indicate that publicity and size are significant in the effectiveness of intervention

the accuracy of reports of foreign exchange intervention abstract this paper considers both qualitative and quantitative evidence on the accuracy of press reports of foreign exchange intervention by the federal reserve between january 1985 and december 1989 the evidence shows that the likelihood of intervention being reported given that it actually occurred was 72 per cent and that the likelihood of intervention actually occurring given that it was reported was 88 per cent interventions which were reported were larger on average than those which were not reported and this difference is statistically significant multinomial logit analysis also demonstrates that the likelihood of intervention being reported increased with the size of the intervention jel f31

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

sunk costs and strategic commitment a proposed three stage equilibrium dixit s i980 paper in this journal the role of investment in entry deterrence has attracted considerable interest from economists concerned with constructing a modern theory of strategic behaviour towards entry in fact the paper has spawned quite an industry of commitment models in which the equilibrium payoffs in some final period game can be influenced by strategic commitments made by the players in an earlier period for similar models with important insights into strategic entry deterrence see eaton and lipsey i980 i98i schmalensee i98i the purpose of this note is to argue that when the instrument of stragetic commitment takes the form of sunk costs which both entrant and incumbent have to bear as it does in dixit s paper and in many other examples a three stage model rather than the two stage model presented by dixit is required although the proposed equilibrium differs from dixit s its qualitative features are the same it may or may not be profitable to deter entry and if it is the first mover may still prefer to play an accommodation strategy and allow entry to take place following dixit we restrict our attention to the asymmetric case in which one firm the incumbent makes the first move the two stage game involves the first mover sinking part of its costs in advance so that in the second stage equilibrium it will have a current cost advantage over the entrant which must incur the full cost of producing any desired output level the second period cost asymmetry ensures the incumbent a lar ger share of the post entry market which may be sufficient to deter entry altogether the problem with the two stage game lies in the nature of sunk costs sunk costs by definition are committed before the production period takes place if they were expended as a flow simultaneously with production they would not be sunk the installation of capacity is the natural example employed by dixit and well illustrates the point if installed capacity is a sunk cost which it must be for the incumbent to acquire any strategic advantage at all then the entrant s installed capacity is equally sunk and must also be committed before the production period takes place given this observation the post entry final period equilibrium should not be modelled as if the entrant were simultaneously incurring both variable and sunk costs but the incumbent only incurs variable costs this implies too great an asymmetry in favour of the incumbent the final period equilibrium should involve both firms incurring only variable

exchange rate return predictability and the adaptive markets hypothesis evidence from major foreign exchange rates this study examines return predictability of major foreign exchange rates by testing for martingale difference hypothesis mdh using daily and weekly nominal exchange rates from 1975 to 2009 we use alternative mdh tests for linear and nonlinear dependence which include wild bootstrap automatic variance ratio test generalized spectral test and consistent tests we evaluate time varying return predictability by applying these tests with fixed length moving sub sample windows of two years while exchange rate returns are found to be unpredictable most of times we do observe episodes of statistically significant return predictability they are associated with coordinated central bank interventions and the subprime mortgage crisis in 2007 this finding suggests that return predictability of foreign exchange rates occurs from time to time depending on changing market conditions which is consistent with the implications of the adaptive markets hypothesis

high frequency analysis of foreign exchange interventions what do we learn abstract the high frequency analysis of foreign exchange dynamics is helpful in order to better identify the impact of central bank interventions evidence robustly shows that interventions do indeed move the exchange rate level in the desired direction interventions increase volatility in the short run as they are regarded as information but they can reduce volatility overall ways of transmission may reach beyond the signalling channel and also include the portfolio balance and a damping channel finally interventions are more successful if they obey certain conditions such as being coordinated among central banks and going with the market and fundamentals

u s intervention assessing the probability of success this paper estimates the unconditional and conditional probabilities that u s interventions successfully smooth short term mark dollar and yen dollar exchange rates the sample period extends from february 1987 to february 1990 assuming a binomial distribution the number of observed successes usually is greater than one would expect to see randomly results from a logit model suggest that coordinated intervention has a higher probability of success than unilateral intervention the probability of success also increases with the dollar amount of an intervention other conditioning variables are not significant the paper presents a reaction function with adjustments for the incidentally truncated nature of intervention data predicted values serve as instruments for intervention in the logit models

daily effects of foreign exchange intervention evidence from official bank of canada data abstract this paper analyzes the effects of official daily bank of canada intervention in the cad usd exchange rate over the 1995 1998 period using an event study methodology and different criteria for effectiveness some evidence that intervention was systematically associated with both a change in the direction and a smoothing of the exchange rate is presented the results of the analysis however do not suggest that bank of canada intervention succeeded in reducing the volatility of the cad usd exchange rate furthermore the paper shows that the effects of intervention are weakened when adjusting for general currency co movements against the usd

what prompts japan to intervene in the forex market a new approach to a reaction function abstract this paper estimates and analyzes the reaction function of japanese intervention in the foreign exchange forex markets using daily japanese intervention data from april 1 1991 to december 31 2002 a theoretical friction model is adopted to describe the intervention as cost minimizing behavior an ordered probit model consistent with the theoretical model is employed to estimate authorities reaction function a noise to signal ratio is applied in selecting the optimal cutoff point in estimated ordered probit function major findings are as follows 1 a regime change in june 1995 from small scale frequent interventions to large scale infrequent interventions is detected 2 the optimum cutoff is higher in the first half than the second half

effective sterilized foreign exchange intervention evidence from a rule based policy abstract this paper investigates the effectiveness of sterilized foreign exchange interventions by exploiting a discontinuous policy rule used by the central bank of colombia we use a unique data set that comprises tick by tick intervention and order book data daily capital in and outflows and balance sheet information of financial institutions we apply regression discontinuity methods to identify the surprise component of rule based interventions and use this variation to measure how they affect exchange rates and capital flows our findings indicate that interventions had significant effects on the exchange rate albeit short lived 2 3 weeks moreover capital controls amplify the effect of intervention though some effect remains even in the presence of free capital flows a methodological contribution of the paper is to extend regression discontinuity designs to a time series environment and to show how these techniques can be used to identify and estimate local non linear impulse response functions a clearly defined policy rule and high frequency data are crucial in exploiting local variation around the policy cutoff

intervention strategies and exchange rate volatility a noise trading perspective abstract this paper estimates and explains the impacts of sterilized us intervention on exchange rate volatility i find that intervention reduced both yen dollar and dm dollar exchange rate volatilities during 1985 1986 but increased them during 1987 1989 these results are explained in a noise trading framework where the effectiveness of sterilized intervention may depend critically on the design and implementation of intervention strategies jel f31 1997 elsevier science ltd

the effectiveness of central bank intervention in the ems the post 1993 experience abstract we analyze the effectiveness of intervention in the european monetary system by using data on the dem intervention activity of six european central banks covering the period from august 1993 to april 1998 to allow for regime specific intervention effects we estimate markov switching autoregressive conditional heteroscedasticity models we find that interventions have only limited effects on the conditional means and variances

the rise of fund managers in foreign exchange will fundamentals ultimately dominate this paper analyses the behaviour and motivation of fund managers in foreign exchange markets reflected in questionnaire evidence we find that fund managers and fx dealers differ significantly fund managers rely more on fundamentals basically due to their longer forecasting horizons and reject non fundamental influences on exchange rates more than fx dealers however neither can fund managers be considered as pure fundamentalists non fundamentalist positions markedly influence short term decision making they inspire ambivalent views about market imperfections and these views seem to become stronger over time this latter change counterbalances the strengthening fundamental influences resulting from the rise of fund managers

on the long term effectiveness of exchange rate communication and interventions abstract exchange rate communication has come to play an increasingly important role as a policy tool for monetary authorities over the past decade the paper assesses the strategies and the long term effectiveness of communication as well as actual interventions the empirical results for the g3 economies indicate that communication has not only exhibited a significant contemporaneous effect on exchange rates but also has moved forward exchange rates up to a horizon of 6 months in the desired direction moreover communication is found to reduce exchange rate volatility and uncertainty whereas actual interventions tend to raise it overall this underlines a key difference between these two policy tools and suggests that communication tends to be a fairly effective policy tool over the medium term

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

on the inadequacy of newswire reports for empirical research on foreign exchange interventions abstract reuters news reports have become an accepted tool for empirical studies analyzing informational asymmetries in fx markets this paper tests the accuracy of the reuters reports for swiss interventions in the foreign exchange market the evidence finds that the time stamp of the reuters reports does not always lie near the recorded time of the first intervention trade as is commonly assumed in market microstructure studies the standard deviation of the time difference is measured in hours and not in minutes these and other regression results question the accuracy of reuters reports for swiss interventions

intraday effects of foreign exchange intervention by the bank of japan abstract we examine the effects of intervention by the bank of japan using intraday data from oct 1 1992 to sept 30 1993 news related to the bank of japan s intervention in the jpy market was retrieved from reuters headlines we find that jpy volatility varies significantly differently across periods from 1 h before to 1 h after reuters intervention reports results from arch models show that intervention by the bank of japan has a positive and significant impact on jpy volatility particularly at high frequencies 5 and 10 min intervals we also find that our intervention proxy has the largest effect upon high frequency volatility 30 to 45 min prior to reuters reports

the intraday effects of central bank intervention on exchange rate spreads abstract we investigate the intraday effects of intra marginal intervention in a horizontal band on the exchange rate spread official intraday data on danish intervention transactions in the erm ii the exchange rate mechanism of the european union facilitates our analysis we show that intervention purchases and sales both exert a significant influence on the exchange rate spread but in opposite directions intervention purchases of the small currency on average narrow the spread while intervention sales of the small currency on average widen the spread this is a novel finding that differs from those of existing studies that find intervention always widens the exchange rate spread and increases market uncertainty

trade policy reforms and the structure of protection in vietnam this paper examines the current state of the trade policy regime in vietnam against the backdrop of market oriented policy reforms undertaken over the past one and a half decades the core of the paper is an in depth analysis of the structure of protection focusing on both incentives for import competing production and the bias in the incentive structure against export production compared to import competing production it is found that despite notable reform efforts the structure of protection in vietnam is still out of line with that of the major trading nations in the region in terms of the level and the inter industry dispersion of nominal and effective protection rates there is a clear anti export bias in the incentive structure even though the degree of the bias has considerably declined over the years there is no evidence to justify the existing protection structure on grounds of infant industry protection or employment generation

is foreign exchange intervention effective some microanalytical evidence from the czech republic abstract i estimate a two equation system on the czech koruna euro exchange rate and order flow at hourly frequency with transactions data from the reuters spot matching market in the second half of 2002 during which the czech national bank intervened to stem the appreciation of the koruna i find a significant impact of order flow on the exchange rate equal to 7 6 basis points per 10 million of which 80 persists throughout the day the news of intervention increases the price impact of order flow by 3 9 basis points per 10 million the order flow equation yields inconclusive results

once in a generation yen volatility in 1998 fundamentals intervention and order flow abstract the dramatic yen dollar volatility of 1998 has been popularly ascribed to order flow driven by changing tastes for risk and hedge fund herding on unwinding yen carry trade positions rather than fundamentals high frequency evidence of shifting fundamentals is provided by a comprehensive list of macroeconomic announcements news is found to have significant effects on volatility but order flow may play a more important role since portfolio shifts are revealed to the market through trading the results are consistent with order flow playing a significant role in the revelation of private information and associated exchange rate shifts

market microstructure effects of government intervention in the foreign exchange market as asymmetric information model of the bid ask spread is developed for a foreign exchange market subject to occasional government interventions traditional tests of the unbiasedness of the forward rate as a predictor of the future spot rate are shown to be inconsistent when the rates are measured as the average of their respective bid and ask quotes larger bid ask spreads on fridays are documented reliable evidence of asymmetric bid ask spreads for all days of the week albeit more pronounced on fridays are presented the null hypothesis that the forward rate is an unbiased predictor of the future spot rate continues to be rejected the regression slope coefficients increase toward unity however indicating a less variable risk premium

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

conditional covariances and direct central bank interventions in the foreign exchange markets abstract in this paper we investigate the effects of central bank interventions cbis on the ex post correlation and covariance of exchange rates using a multivariate garch model with time varying conditional covariances we estimate the effects of cbis on both the variances and covariance between the yen and the deutsche mark the euro in terms of the us dollar our results suggest that coordinated cbis not only tend to increase the volatility of exchange rates but also explain a significant amount of the covariance between the major currencies we show that this result can be useful for short run currency portfolio management

foreign exchange intervention in emerging markets a survey of empirical studies nowadays foreign exchange interventions occur in emerging market economies whereas empirical studies on interventions mainly refer to advanced economies however interventions in emerging markets are different from those in advanced economies they occur regularly and central banks have considerable leverage derived from relatively high reserves some non sterilisation the central bank s information advantage and capital controls consequently these interventions often successfully impact the level and volatility of exchange rates nevertheless more research on interventions in emerging markets is needed analysing the influence of heterogeneous institutional circumstances examining the role of central bank communication and using high frequency data

judo economics reconsidered capacity limitation entry and collusion abstract the capacity investment by a new firm into an established market is explored in a repeated price game if the entrant expects collusion to prevail upon entry it may not practice judo economics but instead choose to install enough capacity to serve the entire market this occurs when collusion involves optimal punishment paths if instead collusion is based upon the static nash equilibrium punishment and the incumbent has excess capacity and the entrant is at a cost disadvantage the entrant will strategically limit its capacity so as to restrain the incumbent s price response to entry

occasional interventions to target rates this paper develops a model of central bank intervention based upon a policy characteristic of foreign exchange interventions by the united states germany and japan in the late 1980 s and evaluates it empirically central bankers intervene with greater intensity as rates deviate from target levels but they also try to stabilize rates around current levels the model is estimated using exchange rates and data based upon observed central bank interventions interestingly the estimates of the model are consistent with the predictions of the theoretical model for both the deutsche mark dollar rate and less strongly for the yen dollar rate jel f41 g15 f31

list pricing and discounting in a bertrand edgeworth duopoly list or retail pricing is a widely used trading institution where firms announce a price that may be discounted at a later stage competition authorities view list pricing and discounting as a procompetitive practice we modify the standard bertrand edgeworth duopoly model to include list pricing and a subsequent discounting stage both firms first simultaneously choose a maximum list price and then decide whether to discount or not in a subsequent stage we show that list pricing works as a credible commitment device that induces a pure strategy outcome this is true for a general class of rationing rules further unlike the dominant firm interpretation of a price leader the low capacity firm may have incentives to commit to a low price and in this sense assume the role of a leader

a theoretical approach to sterilized foreign exchange intervention in this paper we survey prominent theories that have shaped the literature on sterilized foreign exchange interventions we identify three main strands of literature 1 that which deems interventions futile 2 that which requires some market friction i e limited arbitrage in order for interventions to be effective and 3 that which advocates the use of interventions as long as they convey signals on the stance of future monetary policy we contribute to the literature in three important ways first by reviewing new theoretical models that have surfaced within the last decade second by further penetrating into the theory of interventions in order to analyze the key features that make each model distinct and third by only focusing on sterilized operations which allows us to sidestep the effects induced by changes in the stock of money supply in addition the models that we present comprise both a macro and microstructure approach so as to provide a comprehensive view of the theory behind exchange rate intervention

central bank forex internvention assessed in continous time abstract this paper looks at some of the principal characteristics of foreign exchange intervention by central banks the approach is novel in that virtually continous time data have been exploited using reuters screen information jel f31

export success against the odds a vietnamese case study abstract vietnam has achieved notable export success in its textile and garment industry over the past decade such an outcome might at first appear puzzling in view of many obstacles in the way of export success the country had hitherto experienced a long period of international commercial isolation its exporters have continued to be excluded from the key us market there is a large and generally very inefficient state owned enterprise soe sector its private sector faces active harassment and discrimination much of the regulatory bureaucracy has at best a poor understanding of the operation of international markets and there are notable institutional weaknesses in seeking an explanation for this export success several features of the general policy regime are emphasized especially those associated with the doi moi reform process which took root from the late 1980s it is argued that the lessons both positive and negative from this vietnamese case study are generalizable to other transitional and late comer export economies

the market microstructure of central bank intervention abstract how quickly do central bank intervention operations impact the foreign exchange market and do intra daily market conditions influence the effectiveness of central bank interventions this paper uses high frequency intra daily data to examine the relationship between the efficacy of intervention operations and the state of the market at the moment that the operation is made public the results indicate that some traders typically know that the fed is intervening at least 1 h prior to the public release of the information in newswire reports also the evidence suggests that the timing of intervention operations matters interventions that occur during heavy trading volume that are closely timed to scheduled macro announcements and that are coordinated with another central bank are the most likely to have large effects

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

effective protection policy appraisal and trade policy reform when the effective protection concept was rst developed it was widely regarded as a key widely used especially in the context of policy reform and policy appraisal in developing countries this paper re appraises tmeasure of the structure of protection and became widely deployed it was however subject to a he concept reviews the extent of its application and discusses the factors behind its longevity as an investigative tool the theoretical critique on the grounds that it was essentially a partial equilibrium measure which could not be easily embedded ipaper concludes that the measure still has a role to play in evaluating the structure of protection n a general equilibrium framework notwithstanding this critique the concept has continued to be

channels of us monetary policy spillovers to international bond markets abstract we show significant us monetary policy mp spillovers to international bond markets our methodology identifies us mp shocks as the change in short term treasury yields around federal open market committee meetings and traces their effects on international bond yields using panel regressions we emphasize three main results first us mp spillovers to long term yields have increased substantially after the 2007 2009 global financial crisis second spillovers are large compared with the effects of other events and at least as large as the effects of domestic mp after 2008 third spillovers work through different channels concentrated in risk neutral rates expectations of future mp rates for developed countries but predominantly on term premia in emerging markets in interpreting these findings we provide evidence consistent with an exchange rate channel according to which foreign central banks face a trade off between narrowing mp rate differentials or experiencing currency movements against the us dollar developed countries adjust in a manner consistent with freely floating regimes responding partially with risk neutral rates and partially through currency adjustments instead emerging countries display patterns consistent with foreign exchange interventions which cushion the response of exchange rates but reinforce capital flows and their effects in bond yields through movements in term premia our results suggest that the endogenous effects of currency interventions on long term yields should be added into the standard cost benefit analysis of such policies

collusion among asymmetric firms the case of different discount factors abstract this study investigates collusive behavior among asymmetric firms for this purpose we develop a selection criterion for deriving a unique collusive outcome and apply it to the case when firms have different discount factors our analysis reveals that for collusion to be self enforcing it is unnecessary that all firms have sufficiently high discount factors but rather only that firms on average have a sufficiently long run view the optimal collusive outcome entails a strict ordering of output quotas in which firms with relatively low discount factors receive a disproportionate share of market demand as found in the case of a common discount factor a fall in a firm s discount factor reduces the likelihood of successful collusion this effect reduces firm profits on the other hand in the event that firms can collude a lowering of a firm s discount factor increases its output quota so that its profits rise

endogenous quality choice price vs quantity competition two versions of a vertical product differentiation model one with fixed and the other with variable costs of quality are analyzed to study how the hypotheses of price versus quantity competition affect equilibrium solutions product differentiation arises under all the scenarios considered contrasting previous findings of symmetric quality choices under cournot behavior however to relax harsher market competition firms differentiate more under bertrand than under cournot a simple welfare measure also indicates that the economy is better off when firms compete on prices with fixed costs of quality not only consumer but also producer surplus is higher under price competition copyright 1993 by blackwell publishing ltd

exchange rate effects of central bank interventions an analysis of transaction prices the impact of sterilised interventions by the swiss national bank on the swiss franc u s dollar exchange rate is examined for the 1986 94 period the paper extends results from earlier studies by using the actual prices of interventions based on the fact that all swiss national bank interventions are announced our test exploits the informational differences between interventions and customer transactions a key finding is that only initial interventions matter customer transactions and subsequent interventions have no influence when the bretton woods system of fixed exchange rates broke up in the early 1970s central banks continued to intervene on the foreign exchange market in the meantime a substantial literature has emerged that focuses on the effectiveness of official interventions this literature has been summarised by edison 1993 and almekinders 1995 chapter 3 its central policy issue is whether sterilised interventions defined as interventions that leave the monetary base unchanged can have a significant influence on exchange rate behaviour macroeconomic theory proposes various channels for interventions to operate through but the empirical evidence accumulated over the years is less encouraging it suggests that there is no permanent effect of sterilised interventions on the exchange rate more surprisingly perhaps even shortterm effects are hard to pin down the evidence is weak and sample dependent at best in most cases coefficients are either insignificant or have the wrong sign see almekinders 1995 chapter 6 baillie and humpage 1992 dominguez 1998 dominguez and frankel 1993 klein and rosengren 1991 lindberg 1994 and osterberg and wetmore humes 1995 during the last decade the bulk of the empirical research has concentrated on the analysis of daily or weekly data this line of research which adopts the view that exchange rate markets are highly efficient was stimulated by the decision of the federal reserve board and the deutsche bundesbank to make their daily intervention data available to outside researchers to rationalise the gap between the fragile empirical evidence and the manifest interest paid by the media and other observers to interventions various explanations have been offered in this paper we stress two measurement problems first there is the problem of properly defining the exchange rate change in the regression analysis since intervention exchange rates are not available the

official central bank interventions and exchange rate volatility evidence from a regime switching analysis in this paper we investigate the effect of central bank interventions on the weekly returns and volatility of the dem usd and yen usd exchange rate returns in contrast with previous analyses we allow for regime dependent specifications and investigate whether official interventions can explain the observed volatility regime switches it is found that depending on the prevailing volatility level coordinated central bank interventions can lead to either a stabilizing or a destabilizing effect our results lead us to challenge the usual view that such interventions always imply increases in volatility c 2002 elsevier b v all rights reserved

a high frequency assessment of the ecb securities markets programme policy impact studies often suffer from endogeneity problems consider the case of the european central bank ecb securities markets programme if eurosystem interventions were triggered by sudden and strong price deteriorations looking at daily price changes may bias downward the correlation between yields and the amounts of bonds purchased simple regressions of daily changes in yields on quantities often give insignificant or even positive coefficients and therefore suggest that securities markets programme smp interventions have been ineffective or worse counterproductive we use high frequency data on purchases of the ecb securities markets programme and sovereign bond quotes to address the simultaneity and endogeneity issues we propose a vector autoregressive var framework estimated at several frequencies to better measure the smp impact and its persistence our results show that smp interventions have been effective in reducing yields of government bonds for the countries under the program

a transaction level study of the effects of central bank intervention on exchange rates abstract we study the effects of sterilised intervention operations executed on behalf of the swiss national bank snb using tick by tick transactions data between 1986 and 1995 we extend the preliminary analysis of economic journal 109 1999 662 by matching these data with indicative intra day exchange rate quotes and news wire reports of central bank activity using an event study approach we find that intervention has important short run effects on exchange rate returns in particular among various results we find that i intervention has a stronger impact when the snb moves with the market and when its activity is concerted with that of other central banks and ii exchange rate returns move in the 15 min interval prior to interventions

policy appraisal and the structure of protection in a low income developing country problems of measurement and evaluation in burundi the article provides estimates of the structure of nominal and effective tariffs and the tariff equivalents of a set of quantitative import restrictions for burundi a low income data deficient developing country it carefully indicates the assumptions and limitations of the analysis the overall conclusion of the article is that not much significance can be attached to the estimates in a cardinal sense nevertheless recommendations about altering the structure of relative incentives can be justified where these are directed at increasing transparency and uniformity

exchange rate management in emerging markets intervention via an electronic limit order book this paper describes and analyzes the implementation of a crawling exchange rate band on an electronic trading platform the placement of limit orders at the central bank s target rate serves as a credible policy statement that may coordinate beliefs of market participants we find for our sample that intervention increases exchange rate volatility and spread for the next minutes but that intervention days show a lower degree of volatility and spread than non intervention days we also show for intraday data that the price impact of interbank order flow is smaller on intervention days than on non intervention days these stabilizing effects however rely on the conditions of large currency reserves and the existence of capital controls an electronic market seems to support this goal

when do central bank interventions influence intra daily and longer term exchange rate movements this paper examines dollar interventions by the g3 since 1989 and the reasons that trader reactions to these interventions might differ over time and across central banks market microstructure theory provides a framework for understanding the process by which sterilized central bank interventions are observed and interpreted by traders and how this process in turn might influence exchange rates using intra daily and daily exchange rate and intervention data the paper analyzes the influence of interventions on exchange rate volatility finding evidence of both within day and daily impact effects but little evidence that interventions influence longer term volatility

a price setting supergame between two heterogeneous firms when firms attempt to tacitly collude they inevitably face a market sharing problem this problem is further complicated when firms have asymmetries this paper studies a price setting supergame between two firms with different costs the paper investigates sustainability of tacit collusion and solves the market sharing problem under tacit collusion the resulting equilibrium from the supergame is used to study limit pricing government policies toward entrants and welfare change due to technological progress and a change in the time discount rate the paper shows that even costlessly achieved technological progress can decrease social welfare