Interest Arbitrage and Debt Management in the UK under Fixed Exchange Rates

Bob Nobay and P Michael

Oxford Economic Papers, 1993, vol. 45, issue 4, 605-17

Abstract: The authors examine the consequences of interest rate policy and debt management within a model of endogenous policy for the United Kingdom under fixed exchange rates. Their empirical results exploit the framework of cointegration. The authors show that the stylized fact of effective sterilization of reserve flows is not supported by the data and estimate that the authorities supported the gilt-edged market by an intervention of around L593m for a one basis point (policy induced) differential in domestic and U.S. interest rates. Copyright 1993 by Royal Economic Society.

Date: 1993
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