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Foreign Exchange Rate Stabilization and the Profitability of Official Market Intervention
A Case Study for the Netherlands 1974-1989
Fase, M. M. G. | Huijser, A. P.
Credit and Capital Markets – Kredit und Kapital, Vol. 27 (1994), Iss. 2 : pp. 212–234
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M. M. G. Fase, Amsterdam
A. P. Huijser, Amsterdam
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Abstract
Foreign Exchange Rate Stabilization and the Profitability of Official Market Intervention: A Case Study for the Netherlands 1974 - 1989
This paper presents an empirical analysis of the official foreign exchange interventions by the Netherlands’ central bank during the period 1974 - 1989, using monthly data of spot and forward exchange market. The main message of this analysis is that foreign exchange market interventions in the Netherlands have a stabilising impact. The yardstick of the stabilising effect is “ profitability. However, it is shown that it is difficult to assess the profitability of central bank intervention unambiguously. In addition a statistical test is developed to examine whether the results should be attributed to random factors. (Friedman criterion, official exchange market intervention, central banking.)