The Case for Foreign Exchange Intervention: The Government as a Long-Term Speculator

FRB of St. Louis Working Paper No. 2004-031A

33 Pages Posted: 13 Jan 2005

See all articles by Christopher J. Neely

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Date Written: November 3, 2004

Abstract

This paper argues that major governments should act as long-term speculators by intervening to profit from floating exchange rates reversion to fundamentals. Such transactions would improve welfare by transferring risk from private agents to the risk-tolerant government. Interventions explicitly designed to profit the intervening authority would be more likely to be successful and, to the extent that they are, would reduce resource misallocation.

Keywords: Intervention, exchange rate, sterilize, central bank

JEL Classification: F31, G18

Suggested Citation

Neely, Christopher J., The Case for Foreign Exchange Intervention: The Government as a Long-Term Speculator (November 3, 2004). FRB of St. Louis Working Paper No. 2004-031A, Available at SSRN: https://ssrn.com/abstract=648083 or http://dx.doi.org/10.2139/ssrn.648083

Christopher J. Neely (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

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HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

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