مداخله بانک مرکزی و بازخورد معامله گران

Using a chartist–fundamentalist model we study the effectiveness of linear central bank intervention rules. Leaning against the wind (LAW) dampens the amplitude of exchange rate fluctuations. However, the frequency of cycles may rise due to this policy. Interventions in support of a target exchange rate (TARGET) prove to be unsuccessful. While the amplitude stays constant, the frequency of cycles increases. If this rule is executed with a time lag, the amplitude even grows. Neither of the intervention strategies has an impact on the long-run equilibrium exchange rate.

Central bank interventions are motivated by the desire to check short-run trends or to correct long-term misalignments. Although the empirical literature is ambivalent about the usefulness of such operations, central banks intervene quite frequently in foreign exchange markets (LeBaron, 1999, Neely, 2001 and Sarno and Taylor, 2001). At least some policy makers seem to believe that interventions can be an effective tool. Recently, a new class of exchange rate models has emerged. The chartist–fundamentalist approach explores traders who rely on technical and fundamental analysis to forecast future prices. Technical trading rules extrapolate past price movements into the future, whereas fundamental trading rules look at the underlying factors. The interaction between these rules may create complex feedback dynamics. For instance, models by Frankel and Froot, 1986, Kirman, 1991, Brock and Hommes, 1998 and Lux and Marchesi, 2000 have the potential to replicate the main stylized facts of financial markets quite closely. Clearly, if exchange rate fluctuations are driven by an endogenous feedback system, central banks may have the opportunity to manipulate the exchange rate path in a way that stabilizes the dynamics. Given the policy importance of central bank intervention, it is surprising that this aspect has received only little attention in the literature so far. Our aim is to offer a simple framework which may help to understand the working of central bank intervention in the presence of chartists and fundamentalists. Our findings are as follows. Leaning against the wind (LAW) may stabilize the market. On the one hand, it reduces the amplitude of exchange rate fluctuations (i.e. the distortion). On the other hand, the frequency of cycles may rise (i.e. the volatility). Targeting long-run fundamentals has, however, no impact on the amplitude but increases the frequency of cycles. If fundamental targeting is executed with a time lag, the explosiveness of cycles even rises.

On first sight, contracyclical intervention operations appear to be reasonable in the presence of feedback traders. However, our study reveals that simple linear central bank intervention rules may fail in calming down foreign exchange markets. LAW weakens the amplitude of exchange rate swings. Unfortunately, if the market makers react strongly to excess demand—and thereby create a high volatility—the LAW rule is likely to intensify the frequency of cycles. Supporting a TARGET only reinforces the frequency of cycles. Moreover, if the target strategy is executed with a time lag, it amplifies the amplitude of the exchange rate path.