Working Paper

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

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.

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2005

Number: 2004-031