Exchange Market Intervention Under Alternative Forms of Exogenous Disturbances

29 Pages Posted: 23 Apr 2004 Last revised: 11 Jul 2020

See all articles by Stephen J. Turnovsky

Stephen J. Turnovsky

University of Washington - Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 1984

Abstract

This paper analyzes exchange market intervention in a stochastic model of a small open economy. The distinction is made between disturbances which are unanticipated and anticipated on the one hand, and those that are perceived as being transitory or permanent, on the other. The paper demonstrates how the appropriate form of exchange market intervention is sensitive to these aspects of the disturbances. Of particular interest is the case of an unanticipated permanent disturbance, when output may be stabilized perfectly about its frictionless level by the use of a very simple class of intervention rules.The optimal rules in other cases are also discussed.

Suggested Citation

Turnovsky, Stephen J., Exchange Market Intervention Under Alternative Forms of Exogenous Disturbances (March 1984). NBER Working Paper No. w1289, Available at SSRN: https://ssrn.com/abstract=321333

Stephen J. Turnovsky (Contact Author)

University of Washington - Institute for Economic Research ( email )

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