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Intervention in the Foreign Exchange Market in a Model with Noise Traders

In this paper we analyze the effectiveness of sterilized interventions in the foreign exchange market. We use a model in which chartists and fundamentalists interact. This model produces speculative noise which leads to systematic deviations of the exchange rate from its fundamentals. In such an environment, interventions can be effective in reducing the noise. It does this by reducing the profitability of noise trading.
Year of publication:
2003-08
Authors: Grauwe, Paul De ; Grimaldi, Marianna
Institutions: Hong Kong Institute for Monetary Research (HKIMR), Government of Hong Kong
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application/pdf
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Type of publication: Book / Working Paper
Notes:
Number 162003 38 pages
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Persistent link: https://www.econbiz.de/10005435840
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