Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-26T19:12:10.218Z Has data issue: false hasContentIssue false
  • English
  • Français

A model for the analysis of official intervention in the foreign exchange markets

Published online by Cambridge University Press:  17 August 2016

Giorgio Basevi
Giorgio Basevi*
Affiliation:
Université Catholique de Louvain Università degli Studi di Bologna
Get access

Extract

This study has three main objectives. The first is to provide a framework for analyzing the internal monetary effects of surpluses and deficits in the balance of a country's international payments. In published models of the foreign exchange markets, both theoretical and empirical, there typically is no link between the determination of exchange rates, on the one hand, and interest rates on the other. Yet, capital movements are described and estimated, in these models, as determined by the joint influence of such variables. This missing link might very well go far toward explaining the weak statistical results that are generally obtained in these models, especially with regard to the sensitivity of capital movements to exchange rates or to covered interest rate differentials. Even in the economy-wide models that have been constructed and estimated for various countries in recent years, the channels through which external surpluses (deficits) inject (absorb) liquidity into (from) the economy is not clarified in a detail sufficient for the analysis of the connections between foreign exchange policy and monetary policy.

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 37 , Issue 3 , October 1971 , pp. 171 - 191
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1971 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

(*)

Une version provisoire de cette étude a été présentée en anglais lors d'un séminaire qui s'est tenu au Graduate Institute for International Studies de Genève. Elle sera ultérieurement publiée dans International Economies: The Geneva Lectures, M. Connolly and A. Swoboda, Eds. (Allen & Unwin, Spring 1972). C'est pourquoi cet article, publié dans une revue belge par un auteur italien qui enseigne à Louvain-français, est publié dans la même langue que celle du cycle des conférences de Genève.

Je tiens à exprimer ma reconnaissance aux auteurs des critiques nombreuses et utiles que j'ai reçues sur la base des versions provisoires de cette étude. Je veux remercier, en particulier, J.A. Bartolomei, qui, en acceptant de suivre avec sa thèse de doctorat cette ligne de recherche, m'a beaucoup poussé, en tant que son directeur de thèse, à formaliser mes idées sur le sujet.

References

1. Amano, A., International Capital Movements: Theory and Estimation. Economic Research Institute, Economic Planning Agency. Tokyo, June 1971 (mimeographed).Google Scholar
2. Black, S.W., Theory and Policy Analysis of Short-Term Movements in the Balance of Payments, Yale Economic Essays, Vol.8 (Spring 1968), pp. 5–78.Google Scholar
3. Bloomfield, A.I., Official Intervention in the Forward Exchange Market: Some Recent Experience .Banca Nazionale del Lavoro, Quarterly Review, Vol. 49 (March 1964), pp. 1–42.Google Scholar
4. Branson, W.H., Financial Capital Flows in the U.S. Balance of Payments. Amsterdam, North-Holland Publishing Co., 1968.Google Scholar
5. Brehmen, E., Official Forward Exchange Operations : The German Experience, IMF Staff Papers, Vol. 11 (November 1964), pp. 389–413.Google Scholar
6. D'adda, C., Base Monetaria, Flussi Finanziari e Domanda Globale. Bologna, Società editrice Il Mulino, 1971.Google Scholar
7. Frevert, P.A., A Theoretical Model of the Forward Exchange, International Economic Review, Vol. 8 (June, October 1967), pp. 153-67, 307-26.10.2307/2525539Google Scholar
8. Helliwell, J. and Maxwell, T., Short- Term Capital Flows and the Foreign Exchange Market. Discussion paper n° 50, Department of Economics, University of British Columbia. April 1971 (mimeographed).Google Scholar
9. Kenen, P.B., Trade, Speculation, and the Forward Exchange Rate, in Baldwin, R.E. et al., Trade, Growth and the Balance of Payments, essays in honor of Haberler, G.. Amsterdam, North-Holland Publishing Co., 1965.Google Scholar
10. Keynes, J.M., A Tract on Monetary Reform. London, Macmillan and Company, 1923.Google Scholar
11. Leamer, E.E. and Stern, R.E., Quantitative International Economics. Boston, Allyn and Bacon, Inc., 1970.Google Scholar
12. Lee, C.H., A Stock- Adjustment Analysis of Capital Movements: the United States-Canadian Case, Journal of Political Economy, Vol. 77 (July/August 1969), pp. 512-23.10.1086/259540Google Scholar
13. Levin, J.H., Forward Exchange and Internal-External Equilibrium. Ann Arbor, Graduate School of Business Administration, The University of Michigan, 1970.Google Scholar
14. Masera, F., International Movements of Bank Funds and Monetary Policy, Banca Nazionale del Lavoro, Quarterly Review, Vol. 79 (1966), pp. 311-27.Google Scholar
15. Miller, N.C. and Von Neumann Whitman, M., A Mean-Variance Analysis of United States Long-Term Portfolio Foreign Investment, Quarterly Journal of Economics, Vol. 84 (May 1970), pp. 175-96.10.2307/1883008Google Scholar
16. Modigliani, F. and Sutch, R., Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience, Journal of Political Economy, Vol. 75 (Supplement: August 1967), pp. 569-89.10.1086/259334Google Scholar
17. Mundell, R.A., Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates, Canadian Journal of Economics and Political Science, Vol. 29 (November 1963), pp. 475-85.10.2307/139336Google Scholar
18. National Bureau of Economic Research, Conference on International Mobility and Movement of Capital, January 1970. New York, Columbia University Press (forthcoming).Google Scholar
19. Sohmen, E., The Theory of Forward Exchange. Princeton, Department of Economics, International Finance Section, 1966.Google Scholar
20. Stein, J.L., International Short - Term Capital Movements, American Economic Review, Vol. 55 (March 1965), pp. 40–60.Google Scholar
21. Stoll, H., An Empirical Study of the Foreign Exchange Market Under Fixed and Flexible Exchange Rate Systems, Canadian Journal of Economics, Vol. 1 (February 1968), pp. 55–66.10.2307/133461Google Scholar
22. Tsiang, S.C., The Theory of Forward Exchange and Effects of Government Intervention on the Forward Exchange Market, IMF Staff Papers, Vol. 7 (April 1959), pp. 75–106.10.2307/3866124Google Scholar
23. Willett, T.D., The Influence of the Trade Balance and Export Financing on International Short-Term Capital Movements: A Theoretical Analysis, Kyklos, Vol. 22 (Fase. 2, 1969), pp. 314-27.10.1111/j.1467-6435.1969.tb02535.xGoogle Scholar