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| Author: | Sweeney, R.J. |
| Title: | Does the Fed beat the foreign-exchange market? |
| Journal: | Journal of Banking and Finance
2000 : MAY, VOL. 24:5, p. 665-694 |
| Index terms: | Foreign exchange Central banks Profit Markets Risk USA |
| Freeterms: | Interventions |
| Language: | eng |
| Abstract: | This paper's estimates and tests of Fed intervention profits are the first that explicitly adjust for foreign-exchange risk premia. Failure to adjust may grossly affect estimated profits. Profits appear economically and statistically significant, whether risk premia are modelled as time-constant or as appreciation's market beta depending on Fed intervention. The estimates are sensitive to the method of risk adjustment and to the periods used. Because key variable, cumulative intervention, is I(1), test statistics may have non-standard distributions which is a problem affecting past tests, this paper's tests account for non-standard distributions. Possible explanations of these profits have mixed empirical support in the literature. |
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