Exchange Rate Management in Interdependent Economies: From Williamsburg to Louvre

ISBN-13: 9783790807295 / Angielski / Miękka / 1993 / 172 str.

Silke Fabian

Opis

With the breakdown of the Bretton Woods System and the begin of floating between the major currencies, central banks have been formally freed from their obligations to defend the fixed parities of bilateral exchange rates. Nev ertheless, since then there have been countless occasions on which monetary authorities have officially intervened in the foreign exchange market. More over, numerous studies indicate that exchange rates have been much more variable than originally anticipated - in real and in nominal, as well as in short run and longer run measures (see for example Hesse and Braasch 1989] and Marston 1988]). Through the experience of high real sector costs, the topic of optimal exchange rate management soon reentered policy discussions. The term exchange rate management encompasses both the choice of ex change rate regime as well as active intervention policies within the given 1 system. Much of the recent policy discussion has focussed on the first issue, in particular proposals of how to reform the present international monetary order. And new systems such as the European Monetary System (EMS) have emerged for subgroups of countries. However, the question of finding the optimal system has not yet been resolved."

Spis treści

I Official Central Bank Interventions.- 1 Effectiveness of Foreign Exchange Market Interventions.- 1.1 Overview.- 1.2 The Portfolio — Balance Channel.- 1.3 The Signalling Channel.- 1.3.1 Theoretical Foundations.- 1.3.2 Empirical Evidence.- 1.3.3 Policy Implications.- 2 A Signalling Model of Interventions.- 2.1 The General Madel.- 2.2 Certainty: Perfectly Effective Signals.- 2.3 Credibility and Central Bank Reputation.- 2.3.1 Probability of Central Bank Honesty.- 2.3.2 The Repeated Signalling Game.- 2.3.3 The Role of Intervention Costs.- 2.3.4 Determination of the Short Run Exchange Rate.- 2.4 Model Uncertainty.- 2.4.1 Overview.- 2.4.2 Psychological Evidence.- 2.4.3 Econometric Evidence.- 2.4.4 Cognitive Theories of Information Selection.- 2.4.5 Exchange Rate Expectations.- Appendix to Chapter 2.- Summary of Part I.- II International Exchange Rate Management.- 3 Non-Cooperative Intervention Policies.- 3.1 The Domestic Central Bank’s Decision Problem.- 3.1.1 Central Bank Objectives.- 3.1.2 Opportunity Set and Indifference Curves.- 3.1.3 Optimal Central Bank Intervention.- 3.2 Comparative Statics.- 3.2.1 Changes in the Foreign Intervention Volume.- 3.2.2 Increased Credibility of the Home Central Bank.- 3.2.3 Increased Global Uncertainty.- 3.3 Foreign Decision Problem.- 3.4 Nash Equilibrium.- 3.4.1 Policy Conflict.- 3.4.2 Compatible Intervention Policies.- 3.4.3 Welfare-Reducing Interventions: A Discussion.- 4 International Central Bank Cooperation.- 4.1 Welfare Gains Attainable Through Policy Coordination.- 4.1.1 Compatible Exchange Rate Targets.- 4.1.2 Conflicting Exchange Rate Targets.- 4.2 Coordinated Intervention Policies.- 4.3 Excursion: Potential Welfare Losses from Policy Coordination.- 4.3.1 Potential Welfare Gains and Uncertainty.- 4.3.2 Partial International Policy Coordination.- Appendix to Chapter 4.- 5 The International Prisoner’s Dilemma.- 5.1 Overview.- 5.2 The Repeated International Policy Game.- 5.3 Enhanced Instrument Effectiveness through Coordination.- Summary of Part II.- III Empirical Analysis.- Overview.- 6 Did Bundesbank Interventions serve as Signals of Monetary Policy?.- 6.1 The Monetary Base as Indicator of Bundesbank Policy.- 6.2 Bundesbank Interventions 1983–87.- 6.2.1 Intervention Data.- 6.2.2 A Brief Historical Survey.- 6.3 Data and Methodology.- 6.3.1 Intervention Data.- 6.3.2 Monetary Base Data.- 6.3.3 “Normal” or “Expected” Policies.- 6.4 Empirical Results: Joint Hypothesis Tests.- 6.4.1 Regressive Expectations.- 6.4.2 Monetary Growth Targeting.- 6.5 Empirical Results: Significant Monetary Policy Changes.- 6.5.1 Large Monetary Base Changes.- 6.5.2 Changes in Key Interest Rates.- Summary of Part III.- Data Appendix.- Discussion and Concluding Summary.- References.