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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
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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 

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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.

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