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Title: |
Exchange Rate Variability and Exchange Market
Intervention: Spot vs. Forward |
| Author: |
Tseng, Hui-Kuan |
| Author
Affiliation: |
U NC, Charlotte |
| Source: |
International Economic Journal, Summer 1998, v. 12, no. 2, pp. 1-16 |
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Publication Date: |
Summer 1998 |
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Abstract: |
The paper compares forward and spot market
interventions by examining their effects on exchange rate fluctuations.
Using a stochastic partial equilibrium model, it is shown that the two
interventions fail to limit spot rate fluctuations caused by shocks that
do not perturb traders' hedging activity directly. When shocks perturb
this hedging activity in the first place, however, it is shown that
intervention via spot exchange may trigger very large fluctuations once
it cannot sufficiently counteract hedgers' and speculators' combined
response to risk premia. In this case, by contrast, the forward
intervention can dampen exchange rate variability. |
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