NEW EVIDENCE ON THE EFFECTIVENESS OF FOREIGN-EXCHANGE MARKET INTERVENTION

This paper compares foreign exchange market intervention in case there is no uncertainty about the extent of an imperfectly sustainable targ et zone and where there is uncertainty. A well-known example of the fi rst case was the European Monetary System between 1979 and 1992. An ex ample of the latter is the dirty floating of the dollar against the Dm ark and yen after the so-called Louvre Accord in 1987. The analysis sh ows that the instantaneous effectiveness of intervention tends to be l arger the more implicit the band policy is. Our empirical results whic h use Belgian and US intervention data support this claim.