DO CENTRAL BANKS LOSE ON FOREIGN-EXCHANGE INTERVENTION - A REVIEW ARTICLE

Estimates of central bank intervention losses or profits vary widely; some estimates find substantial losses, others profits. In most cases, estimated profits are not risk-adjusted, and risk adjustment can have large effects. Furthermore, profit estimates involve variables integr ated of order one, and because of this test-statistics may have nonsta ndard distributions; few studies take this into account, Estimates of risk-adjusted profits for the US Fed and the Swedish Riksbank, with al lowances for possible nonstandard distributions, suggest that neither made losses and might have made significant profits. (C) 1998 Elsevier Science B.V. All rights reserved.