Leaning against the Wind: Do Central Banks Necessarily Lose?

John Carlson and Insook Kim

Review of International Economics, 1994, vol. 2, issue 2, 143-52

Abstract: 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. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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