Cross Country Effects of Sterilization, Reserve Currencies and Foreign Exchange Information / Richard C. Marston.

Format:

Book

Author/Creator:

Marston, Richard C.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0391.

NBER working paper series no. w0391

Language:

English

Subjects (All):

Foreign exchange.

Monetary policy.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1979.

Cambridge, Massachusetts : National Bureau of Economic Research, 1979.

Summary:

This study examines the international repercussions of national sterilization policies under fixed exchange rates and managed flexibility. The effects of sterilization on the country pursuing the policy are well-known, but the adverse effects on other countries have not been adequately explored. In this study, a stochastic framework is used to analyze the impact of balance of payments disturbances on key financial variables in the domestic and foreign countries. The effects of sterilization are explored under fixed rates, and the combined effects of foreign exchange intervention and sterilization are similarly investigated in a regime of managed flexibility. In either regime, sterilization by the foreign country imposes costs on the domestic country by magnifying the impact of balance of payments disturbances on the domestic financial market. The analysis has important implications for the use of reserve currencies: Countries issuing reserve currencies benefit from the automatic sterilization of their balance of payments surpluses or deficits, while countries using reserve currencies encounter the same cross country effects as with discretionary sterilization.

Notes:

Print version record

August 1979.