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Title: |
The Effects of Government Intervention in a
Dynamic Model of the Spot and Forward Exchange Markets |
| Author: |
Levin, Jay H. |
| Author
Affiliation: |
Wayne State U |
| Source: |
International Economic Journal, Spring 1988, v. 2, no. 1, pp. 1-20 |
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Publication Date: |
Spring 1988 |
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Abstract: |
This paper develops a flexible exchange
rate model of the spot and forward markets, in which risk averse asset
holders view domestic and foreign securities as imperfect substitutes on
a covered basis because of political or default risk; and in which
forward market speculators have rational exchange rate expectations but
are averse to exchange risk. In this context, the effects of sterilized
government intervention in the spot and forward exchange markets are
analyzed and compared. The most general finding is that spot and forward
intervention have prolonged, although transitory, exchange rate effects
unless both arbitrageurs and speculators are risk neutral. |
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