Rational expectations and the effect of exchange-rate intervention on the exchange rate

Michael Beenstock*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

A theoretical model is proposed in which the exchange rate is affected by current and capital account transactions and the central bank intervenes in the foreign exchange market by buying and selling foreign exchange. The effects of this intervention on the exchange rate are explored under the assumption that exchange-rate expectations are formed rationally and solutions are obtained for the perfect and imperfect foresight cases. The paper concludes with a discussion of the non-optimality of time inconsistent policies when exchange-rate expectations are rational.

Original languageEnglish
Pages (from-to)319-331
Number of pages13
JournalJournal of International Money and Finance
Volume2
Issue number3
DOIs
StatePublished - Dec 1983
Externally publishedYes

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