Premium
Leaning Against the Wind: Do Central Banks Necessarily Lose?
Author(s) -
Carlson John A.,
Kim Insook
Publication year - 1994
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.1994.tb00036.x
Subject(s) - economics , exchange rate , yield (engineering) , monetary economics , intervention (counseling) , central bank , monetary policy , physics , thermodynamics , psychology , psychiatry
A leaning‐against‐the‐wind intervention that has only a temporary effect on the exchange rate and that is not too aggressive can be shown analytically to yield positive expected profits to a central bank even when the exchange‐rate process is nonstationary. These profits arise if there are some transitory shocks to the exchange rate. Furthermore, very aggressive intervention will yield positive expected profits eventually when there is a tendency for exchange rates to return to a long‐run equilibrium level.