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 language | English |
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Pages (from-to) | 319-331 |
Number of pages | 13 |
Journal | Journal of International Money and Finance |
Volume | 2 |
Issue number | 3 |
DOIs | |
State | Published - Dec 1983 |
Externally published | Yes |