U.S. Intervention: Assessing the Probability of Success

37 Pages Posted: 17 Jan 2015

See all articles by Owen Humpage

Owen Humpage

Federal Reserve Bank of Cleveland

Date Written: September 1, 1996

Abstract

This paper estimates the unconditional and conditional probabilities that U.S. interventions successfully smooth short-term mark-dollar and yen-dollar exchange rates. The sample period extends from February 1987 to February 1990. Assuming a binomial distribution, the number of observed successes usually is greater than one would expect to see randomly. Results from a logit model suggest that coordinated intervention has a higher probability of success than unilateral intervention. The probability of success also increases with the dollar amount of an intervention. Other conditioning variables are not significant. The paper presents a reaction function, with adjustments for the incidentally truncated nature of intervention data. Predicted values serve as instruments for intervention in the logit models.

Suggested Citation

Humpage, Owen, U.S. Intervention: Assessing the Probability of Success (September 1, 1996). FRB of Cleveland Working Paper No. 9608, Available at SSRN: https://ssrn.com/abstract=2550313 or http://dx.doi.org/10.2139/ssrn.2550313

Owen Humpage (Contact Author)

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

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