Target zone interventions and coordination of expectations

Autor(en): Reitz, S.
Westerhoff, F.
Wieland, C.
Stichwörter: central bank interventions; foreign exchange markets; heterogeneous agents; Mathematics; Mathematics, Applied; Operations Research & Management Science; technical and fundamental analysis
Erscheinungsdatum: 2006
Herausgeber: SPRINGER/PLENUM PUBLISHERS
Journal: JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS
Volumen: 128
Ausgabe: 2
Startseite: 453
Seitenende: 467
Zusammenfassung: 
Foreign exchange markets display regularly severe bubbles. This paper explores whether or not the so-called target zone interventions are an effective tool for central banks to stabilize the exchange rate. We define such intervention operations as buying/selling an undervalued/overvalued currency when the distance between the exchange rate and its fundamental value exceeds a critical threshold value. On the basis of a nonlinear empirical exchange rate model with chartists and fundamentalists, we find that not only target zone interventions have the power to reduce misalignments but also to earn profits.
Beschreibung: 
10th International Conference on Computing in Economics and Finance, Amsterdam, NETHERLANDS, JUL, 2004
ISSN: 00223239
DOI: 10.1007/s10957-006-9027-6

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