Information sharing and central bank intervention in the foreign exchange market

This paper develops a model of information sharing among heterogeneously in formed agents and it uses the model to examine a rationale for intervention in the foreign exchange market. The model shows that in a partially reveal ing rational expectations equilibrium, some agents can gain by sharing amon g themselves private information about transitory exchange rate disturbance s. In this setting, a central bank can affect the exchange rate by aggregat ing and disseminating agents' information. The paper also illustrates the u sefulness of intervention as a way to transmit that information. (C) 2001 E lsevier Science B.V. All rights reserved.