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Working Paper 2004-031B

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"The Case for Foreign Exchange Intervention: The Government as an Active Reserve Manager"
by Christopher J. Neely

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.

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Category > Finance
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Author > Christopher J. Neely