Realignment Expectations Forward Rate Bias And Sterilized Intervention In An Adjustable Peg Exchange Rate Model With Policy Optimization
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Realignment Expectations, Forward Rate Bias, and Sterilized Intervention in an Adjustable Peg Exchange Rate Model with Policy Optimization
Author: Mr.Peter Isard
language: en
Publisher: International Monetary Fund
Release Date: 1994-02-01
The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully informed about the incentives of policymakers, the analysis focuses on the implications for relating realignment expectations to the state variables that enter the policy objective function, for modeling the bias in using forward exchange rates to predict future spot rates, and for characterizing the effectiveness of sterilized intervention.
Working Paper Summaries (WP/94/1 - WP/94/76)
Author: International Monetary Fund
language: en
Publisher: International Monetary Fund
Release Date: 1994-08-01
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Realignment Expectations, Forward Rate Bias, and Sterilized Intervention in an Adjustable Peg Exchange Rate Model with Policy Optimization
The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully informed about the incentives of policymakers, the analysis focuses on the implications for relating realignment expectations to the state variables that enter the policy objective function, for modeling the bias in using forward exchange rates to predict future spot rates, and for characterizing the effectiveness of sterilized intervention.