Exchange Market Intervention Under Alternative Forms of Exogenous Disturbances [report]

Stephen Turnovsky
1984 unpublished
This paper analyzes exchange market intervention in a stochastic model of a small open economy. The distinction is made between disturbances which are unanticipated and anticipated on the one hand, and those that are perceived as being transitory or permanent, on the other. The paper demonstrates how the appropriate form of exchange market intervention is sensitive to these aspects of the disturbances. Of particular interest is the case of an unanticipated permanent disturbance, when output may
more » ... ce, when output may be stabilized perfectly about its frictionless level by the use of a very simple class of intervention rules. The optimal rules in other cases are also discussed.
doi:10.3386/w1289 fatcat:gvexq5ajtvf2pfflwvp7wnm3v4