Multiple Market Intervention for Target Zones

Ichiro Gombi ()

The Japanese Economic Review, 2003, vol. 54, issue 1, 74-85

Abstract: I examine authorities’ interventions in goods and money markets to keep exchange rates within targeted zones, in an economy where both the exchange rate and the prices of goods are interdependent forward‐looking variables. I show that, (1) in order to support target zones in both goods and money markets, there needs to be coordinated, simultaneous intervention in the two markets; (2) intervention takes place almost certainly before the exchange rate or the price level reaches its upper or lower bounds; and (3) zones for the exchange rate and for the price level cannot be separately designed as independent policy goals.

Date: 2003
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