are all central bank interventions created equal an empirical investigation abstract this study investigates the relationship between central bank interventions and technical trading rule profitability in the spot foreign exchange market because interventions are not necessarily exogenous events we analyze the relationships between interventions by the g 3 central banks financial market conditions changes in monetary policy and technical trading profitability by considering announced unannounced unilateral and coordinated interventions separately we provide more insight into the interrelationships between these factors than previous studies we find that the level of technical trading profits and market uncertainty increase preceding and remain high during interventions especially announced and coordinated but decrease afterward a preliminary investigation of the possible role of a time varying risk premium around interventions cannot be rejected

the liquidity effects of foreign exchange intervention abstract this paper examines the effectiveness of foreign exchange intervention in a two country two currency general equilibrium model that allows for liquidity effects both sterilized and non sterilized intervention operations have significant impacts on the allocation of liquidity in international financial markets whether intervention is successful in moving the exchange rate in the desirable direction depends upon the degree of sterilization of intervention and the intratemporal elasticity of substitution of the consumption goods the model shows that there exist circumstances in which the response of exchange rate to intervention is perverse as documented in the empirical literature

are exchange rate bands better than fixed exchange rates the imported credibility approach this paper explicitly incorporates exchange rate bands into the barro gordon model of inflation this is a non trivial extension focusing on markov perfect equilibria we specify the properties of the optimal policy functions exchange rate dynamics and hence the arguments for and against target zones the attractiveness of alternative exchange rate regimes i e fixed flexible and target zones and the position of exchange rates inside the band depend on the inflationary performance of the center country

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

identifying the efficacy of central bank interventions evidence from australia and japan abstract using a model incorporating the endogenous relationship between exchange rates and intervention we show how a change in central bank policy can be used as an identification assumption estimating this model with simulated gmm for daily data from australia and japan we find that a us 100 million purchase appreciates the australian dollar by 1 3 1 8 but the yen by just 0 2 almost all of the impact of an intervention occurs during the day it is conducted and we confirm that central banks typically lean against the wind

international policy coordination for financial market stability in the asian economies based on the understanding of financial crisis as the self fulfilling crisis of speculators belief system this paper examines the feasibility of introducing the tobin tax system to reduce financial volatility in the asian foreign exchange markets the model analysis in this paper provides the following policy implications to reduce the motivation to deviate from the policy coordination it is required to allow all tax revenues to collecting countries especially to singapore and hong kong even without the participation of the major western countries the start of the tax policy coordination in the asian region can have significant signalling effects to reduce speculative motivation

central bank authorities beliefs about foreign exchange intervention abstract this paper presents the results of a survey of monetary authorities with respect to foreign exchange intervention the survey offers evidence on new issues that would otherwise be difficult to investigate such as response times non foreign exchange factors in intervention and profitability the survey also reveals new evidence on previously studied issues such as channels of effectiveness respondents disagreed with predominant views on intervention and volatility and common arguments against intervention exchange rate regimes explain central bank beliefs about important aspects of intervention including factors that lead to detection of secret interventions and the potential profitability of intervention

the efficient market hypothesis and insider trading on the stock market we study the behavior of a large trader with private information about the mean of an asset with a risky return we argue that if the variability of the return is not too great typically the trader will find it desirable to ensure that the market price does not reveal his information that is that a pooling equilibrium arises such an equilibrium has the advantage of avoiding the incentive constraints that arise in separating equilibria where information can be inferred from prices thus the efficient market hypothesis may well fail if there is imperfect competition despite the uniformativeness of prices the other competitive traders are also better off in the pooling equilibrium than in any separating equilibrium again if one assumes limited variability

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

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

the advantage to hiding one s hand speculation and central bank intervention in the foreign exchange market 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

information sharing and central bank intervention in the foreign exchange market abstract this paper develops a model of information sharing among heterogeneously informed agents and it uses the model to examine a rationale for intervention in the foreign exchange market the model shows that in a partially revealing rational expectations equilibrium some agents can gain by sharing among themselves private information about transitory exchange rate disturbances in this setting a central bank can affect the exchange rate by aggregating and disseminating agents information the paper also illustrates the usefulness of intervention as a way to transmit that information

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

policy watch the expanding reach of the individual alternative minimum tax abstract the individual alternative minimum tax amt was designed in 1970 to apply reduce aggressive tax sheltering but under current law will grow to cover tens of millions of households in the next decade the growth occurs because the amt is not indexed for inflation and the 2001 tax cut reduced regular income taxes but not the amt amt growth is troubling because the tax has questionable effects on equity and efficiency and is inordinately complex this paper describes the amt discusses economic issues related to the alternative minimum tax and examines options for reform

anatomy of a government intervention in index stocks price pressure or information effects in a massive intervention designed to deter speculators the hong kong monetary authority hkma bought hang seng index stocks in august 1998 these stocks experienced a 24 abnormal return during the intervention period the abnormal returns are not reversed over the next eight weeks refuting the hypothesis that returns are due to temporary liquidity effects cross sectional analysis of daily abnormal returns during the intervention period reveals that these returns are related to overall intervention activity rather than stock specific intervention this evidence is consistent with information effects rather than price pressure effects

insider trading in a rational expectations economy it is often argued that efficiency considerations require society to freely permit insider trading in this article an opposing efficiency argument is formalized the model incorporates an investment stage followed by a trading stage if outsiders expect insiders to take advantage of them in trading outsiders will reduce their investment the insiders loss from this diminished investor confidence may more than offset their trading gains consequently a prohibition on insider trading may effect a pareto improvement insiders are made better off if they can precommit not to trade on their privileged information govemment regulation accomplishes exactly this jel 022 026 313 the traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets indeed president franklin d roosevelt justified the first major u s securities legislation by saying it should give impetus to honest dealing in securities and thereby bring back public confidence similar language is still invoked half a century later in connection with enforcement efforts against insider trading and in proposals for tightened stock

technical analysis and central bank intervention abstract this paper extends genetic programming techniques to show that us foreign exchange intervention information improves technical trading rules profitability for two of four exchange rates over part of the out of sample period rules trade contrary to intervention and are unusually profitable on days prior to intervention indicating that intervention is intended to halt predictable trends intervention seems to be more successful in checking such trends in the out of sample 1981 98 period than in the in sample 1975 80 period any improvement in performance results from more precise estimation of the relationship between current and past exchange rates rather than from information about contemporaneous intervention

fed intervention dollar appreciation and systematic risk abstract in a four factor asset pricing model estimated on daily data fed intervention significantly affects betas of surprises in the market return expected inflation rate yield curve and corporate bond risk premium fed foreign currency sales cause economically and statistically significant increases in the systematic risk premium in appreciation and thus in the dollar s expected appreciation rate the direction the fed desires and consistent with the signaling but not the portfolio balance channel intervention s effects on actual appreciation are less reliable they depend on unpredictable risk factor realizations even successful intervention to strengthen the dollar may be costly by increasing the dollar s systematic risk intervention reduces the attractiveness of u s relative to foreign investments further uncertainty about future fed interventions may induce resource misallocation ceteris paribus investors find it harder to estimate risk adjusted discount rates and forecast the home currency value of cash flows

quality quantity spending and prices abstract one measure of the change in the quality of consumption is the degree to which the consumption basket as a whole moves towards more luxurious goods away from necessities we introduce two related measures based on the luxury necessity distinction one is an index of the extent to which the prices of luxuries change as compared to necessities while the second indexes the change in spending these two measures are interpreted as the price of and spending on quality the volume of quality is then spending deflated by its price using the recent international comparison program data for 100 countries we find that on average quality increases with income but at a slower rate luxuries are relatively more expensive in richer countries necessities cheaper and approximately 75 percent of additional spending on quality flows into a volume component with the remaining 25 percent accounted for by prices

a class of quadratic options for exchange rate stabilization abstract we propose the use of a new option which we call quadratic and that central banks could use to smooth exchange rate volatility through the hedging strategies of the issuers we derive analytic pricing and hedging formulas we suggest a criterion to derive the optimal for the central bank option parameters finally we perform several simulation exercises which show the effectiveness of using this option with or without conventional spot interventions

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

the welfare implications of foreign exchange intervention abstract this paper examines the welfare implications of foreign exchange intervention in a two country two currency general equilibrium model with limited participation in financial markets and cash in advance constraints on transactions both sterilized and nonsterilized intervention operations have significant impacts on the allocation of liquidity in international financial markets and therefore affect real economic activities the welfare effects of shocks to monetary policy sterilized and nonsterilized foreign exchange interventions are examined and compared the design of welfare maximizing intervention policy rules is also discussed