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Sterilized Foreign Exchange Market Interventions in a Chartist-Fundamentalist Exchange Rate Model

Sterilized Foreign Exchange Market Interventions in a Chartist-Fundamentalist Exchange Rate Model
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Year:    2005

Author:    Schmidt, Robert, Wollmershäuser, Timo

Credit and Capital Markets – Kredit und Kapital, Vol. 38 (2005), Iss. 1 : pp. 53–85

Abstract

Sterilized foreign exchange market interventions are commonly dismissed by economists as an ineffective policy instrument - despite its frequent use by many central banks. We argue that the skepticism of many economists can be ascribed to their orientation on fundamentals-based, efficient-market exchange rate models. Given their weak empirical support, however, it is unreasonable to evaluate the effectiveness of sterilized foreign exchange interventions on this basis. The purpose of this paper is to investigate the effectiveness of sterilized foreign exchange market interventions using a chartist-fundamentalist model. We show that turning points occur earlier and that exchange rate misalignments are substantially reduced. (JEL D84, E58, F31)

Journal Article Details

Publisher Name:    Global Science Press

Language:    Multiple languages

DOI:    https://doi.org/10.3790/ccm.38.1.53

Credit and Capital Markets – Kredit und Kapital, Vol. 38 (2005), Iss. 1 : pp. 53–85

Published online:    2005-01

AMS Subject Headings:    Duncker & Humblot

Copyright:    COPYRIGHT: © Global Science Press

Pages:    33

Author Details

Schmidt, Robert

Wollmershäuser, Timo

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Section Title Page Action Price
Robert Schmidt / Timo Wollmershäuser: Sterilized Foreign Exchange Market Interventions in a Chartist-Fundamentalist Exchange Rate Model 53
I. Introduction 53
II. A Critical Review of Traditional Intervention Channels 54
1. Interventions in the Asset Pricing Model of the Exchange Rate 54
2. A Criticism of the Underlying Exchange Rate Models 57
3. High Trading Volumes and Foreign Exchange Market Interventions 59
III. An Alternative Intervention Channel - the Coordination Channel 60
1. The Chartist-Fundamentalist Exchange Rate Model 60
2. Discussion of the C&F Exchange Rate Model 63
3. Calibration of the Baseline C&F Exchange Rate Model 66
4. Interventions in the Chartist-Fundamentalist Model 70
IV. Conclusion and Outlook for Future Research 79
References 81
Summary: Sterilized Foreign Exchange Market Interventions in a Chartist-Fundamentalist Exchange Rate Model 84
Zusammenfassung: Sterilisierte Devisenmarktinterventionen in einem Chartisten-Fundamentalisten-Wechselkursmodell 85
Résumé: Interventions stérilisées sur le marché des changes dans un modèle chartiste-fondamentaliste de taux de change 85