پیامدهای رفاهی مداخله ارزی

This paper examines the welfare implications of foreign exchange intervention in a two-country, two-currency, general equilibrium model with limited participation in financial markets and cash-in-advance constraints on transactions. Both sterilized and nonsterilized intervention operations have significant impacts on the allocation of liquidity in international financial markets and therefore affect real economic activities. The welfare effects of shocks to monetary policy, sterilized and nonsterilized foreign exchange interventions are examined and compared. The design of welfare-maximizing intervention policy rules is also discussed.

Official interventions in the foreign exchange markets have long been used by the monetary authorities of industrialized countries as a stabilization instrument. Although in recent years the Federal Reserve of the United States and the European Central Bank have been reluctant to intervene, the Bank of Japan has been increasingly active in the markets.1 It is of interest to analyze the implications of official interventions on economic welfare. In the existing literature, however, little of that analysis is based on choice-theoretic models. The objective of this paper is to examine the welfare consequences of foreign exchange interventions in a general equilibrium model with microeconomic foundations. With an adequate welfare criterion, the welfare effects of monetary policy, sterilized and nonsterilized foreign exchange interventions are examined and compared. In addition, the design of welfare-maximizing intervention policy rule is discussed. As surveyed by Edison, 1993 and Dominguez and Frankel, 1993, and Sarno and Taylor (2001), the effectiveness of foreign exchange intervention has been analyzed extensively in the literature. Although sterilized intervention has been viewed as having effects on exchange rates through either the portfolio-balance channel or the signaling channel, the evidence on the effectiveness of intervention via the two channels is inconclusive. Ho (2004) presents an alternative channel of influence of foreign exchange intervention that emphasizes the role of international financial markets in allocating liquidity across market participants. By using a two-country, two-currency, general equilibrium model with limited participation in the financial markets and cash-in-advance restrictions on all transactions, the paper studies the liquidity effects induced by official intervention.2 It shows that both sterilized and nonsterilized intervention operations result in changes in asset supplies; these shocks to the liquidity in international financial markets cause fluctuations in exchange rates and interest rates and have real effects on the world economy.3 In the model, limited participation in financial markets implies that the key to the transmission mechanism is how the liquidity in these markets is affected. When the domestic monetary authority conducts an official sale of domestic currency so as to keep the domestic currency from appreciating, the supply of domestic currency to the foreign exchange market increases. The nominal exchange rate rises to clear the market, and the sellers (buyers) receive (pay) more domestic currency for each unit of foreign currency traded. Because of the cash-in-advance constraints, changes in the quantities of a currency obtained by market participants imply that there are changes in their economic activities. In addition to the direct impact on the liquidity in the foreign exchange market, the relative liquidity of the domestic-currency-denominated and foreign-currency-denominated asset markets is affected by the resulting adjustments of the domestic monetary authority's asset holding. In the case of nonsterilized intervention, the domestic monetary authority uses the proceed of foreign currency from the official sale of domestic currency to purchase the foreign-currency-denominated bonds. As the supply of liquidity in the market increases, the interest rate on the foreign-currency-denominated assets falls, and the allocation of liquidity in this market changes. In the case of sterilized intervention, the domestic monetary authority not only purchases the foreign-currency-denominated bonds but also conducts an open market sale of the domestic-currency-denominated bonds to sterilize the effect of intervention on the domestic money supply. The increase in demand for liquidity in the domestic-currency-denominated asset market leads to a rise in the interest rate and a reallocation of the liquidity in this market. These liquidity shocks to the asset markets affect the real activity of market participants. It is therefore natural to extend the analysis of Ho (2004) to study the welfare consequences of the liquidity shocks induced by official intervention. A shortcoming of the existing literature is the absence of welfare assessment of foreign exchange intervention.4 By modeling explicitly the preferences, production and trading opportunities of economic agents, our micro-founded macroeconomic model allows us to compare the welfare implications of monetary policy, sterilized and nonsterilized foreign exchange interventions. We will follow two routes in analyzing the welfare effects of these policy actions of monetary authorities. First, given the households' inability to adjust their deposit decisions after economic disturbances are realized, we examine and compare the welfare consequences of unexpected changes in the monetary authorities' policy actions. The relative magnitudes of the welfare effects of these policy shocks are determined by the relative strength of their liquidity effects on real allocation. It is shown that each of these policy shocks tends to affect the economic welfare of the two countries in opposing directions, and that nonsterilized intervention shocks have the strongest welfare effects on each country, while sterilized intervention shocks having the weakest welfare effects. Second, we consider fixed policy rules that specify the state-contingent policy actions of a monetary authority in response to productivity shocks, and examine their implications on the economic welfare of the two countries. Given that the adoption of a policy rule is pre-announced, households can adjust their deposit decisions in response to the announcement.5 It is found that if the domestic monetary authority plans to inject a fixed amount of domestic currency into the financial markets in response to a bad productivity shock to the domestic economy, an open market operation rule will perform best. The open market operation rule not only helps stabilizing the exchange rate but also brings a slight improvement in the economic welfare to each country, while the sterilized and nonsterilized intervention rules have opposing effects on the economic welfare of the two countries. In addition, it is interesting to find that although the sterilized intervention rule fails to stabilize the exchange rate as effectively as the nonsterilized intervention rule, its effects on economic welfare can be as significant as that of the nonsterilized intervention rule. This paper also sheds some light on the relative desirability of alternative policy rules. Taking as given the foreign monetary authority's policy actions, we illustrate how the welfare-maximizing, state-contingent responses of the domestic monetary authority's policy instruments are derived endogenously under an open market operation rule, a nonsterilized intervention rule, and a sterilized intervention rule, respectively. There are two findings. First, the optimal policy rule that maximizes the expected utility of the domestic representative household is either a sterilized or a nonsterilized intervention rule. Second, when the objective is to maximize the sum of the two representative households' expected utility levels, the performance of the three rules becomes very similar, and the open market operation rule Pareto dominates the foreign exchange intervention rules. These findings suggest an important role of international policy coordination in determining the optimal policy rule. Although the results of this model may depend on the specifications of preferences and technologies, they do highlight the role of financial markets in the transmission mechanism of the effects of monetary authorities' policy rules. Different policy rules channel the newly injected liquidity into different financial markets, leading to different adjustments to the households' deposit decisions in response to the announcements of policy rules, and resulting in different economic consequences. The paper proceeds as follows. The model is described in Section 2. A stationary equilibrium of the world economy is characterized in Section 3. Section 4 analyzes the model. Section 4.1 presents the welfare effects of unexpected policy shocks of the monetary authorities. The welfare implications of alternative policy rules are discussed in Section 4.2. Section 5 concludes the paper.

This paper presents a two-country, two-currency, general equilibrium model to study the welfare implications of foreign exchange intervention by examining the liquidity effects generated by intervention. The role of international financial markets in allocating liquidity is emphasized. Both sterilized and nonsterilized intervention operations have significant impacts on the allocation of liquidity in international financial markets, they not only affect asset prices but also influence real activity. It is obvious that the economic welfare of each country will be affected. The relative magnitudes of the welfare effects of unexpected open market operations, and sterilized and nonsterilized foreign exchange intervention operations are determined by the relative strength of their liquidity effects on real allocation. In addition, it shows that intervention in foreign exchange market affects the economic welfare of the two countries in opposing directions, implying the incentives for monetary authorities to behave strategically when conducting foreign exchange intervention. This paper also examines the relative desirability of alternative policy rules. Given that different policy rules channel the newly injected liquidity into different financial markets, households adjust their deposit decisions differently in response to the announcements of policy rules, resulting in different economic consequences. This result highlights the importance of a better understanding of the roles of financial markets in the transmission mechanism when monetary authorities design their optimal policy rules.