The case for foreign exchange intervention: the government as an active reserve manager

Christopher Neely

No 2004-031, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper argues that major governments should actively manage their foreign exchange portfolios to maximize the risk-adjusted return to the taxpayer by exploiting long-term, fundamental based predictability in floating exchange rates. Such transactions?equivalent to foreign exchange intervention?would improve welfare by transferring risk from private agents to the risk-tolerant government. Interventions explicitly designed to profit the reserve management authority would be more likely to be successful and, to the extent that they are, would reduce resource misallocation.

Keywords: Foreign; exchange (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-ifn and nep-mon
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Citations: View citations in EconPapers (5)

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