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Selective asymmetric intervention and sterilization

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  • John Carlson
  • Melody Lo

Abstract

Monetary authorities commonly use interventions in foreign exchange markets to influence exchange rates. This paper uses Taiwan's data to show that how interventions respond to external shocks representing depreciation or appreciation pressures depends on other objectives of the monetary authority. If maintaining low inflation is important, then when authorities consider inflation to be too high, asymmetrical interventions are likely to result with more vigorous unsterilized interventions to offset depreciation pressures than to offset appreciation pressures. Empirical evidence from Taiwan supports these patterns when external shocks occur in the yen/US$ exchange rate.

Suggested Citation

  • John Carlson & Melody Lo, 2004. "Selective asymmetric intervention and sterilization," Applied Financial Economics, Taylor & Francis Journals, vol. 14(11), pages 823-833.
  • Handle: RePEc:taf:apfiec:v:14:y:2004:i:11:p:823-833
    DOI: 10.1080/0960310042000203000
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    References listed on IDEAS

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    1. Martin D. D. Evans & Richard K. Lyons, 2001. "Portfolio Balance, Price Impact, and Secret Intervention," NBER Working Papers 8356, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Dobromł Serwa, 2006. "Do emerging financial markets react to monetary policy announcements? Evidence from Poland," Applied Financial Economics, Taylor & Francis Journals, vol. 16(7), pages 513-523.

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