Research seminar by E. Kwan Choi (Iowa State University): «Profits and Losses from Currency Intervention»

On Thursday, May 17 at 4.40 pm International College of Economics and Finance will hold Research seminar.
Speaker: E. Kwan Choi (Iowa State University)
Theme: «Profits and Losses from Currency Intervention»
Venue: Pokrovski Bulvar, 11, Room Zh-822

Abstract:This paper investigates the possible gains from currency intervention by central banks using a two-period framework in which a trade surplus in one period must be offset by a trade deficit in the next period. It is shown that when the interest rate is zero, the optimal policy is nonintervention. If the interest rate is positive, a country may earn positive profits by incurring a trade surplus in the first period. However, there is an upper bound for optimal trade surplus. A country actually may lose money if the rate of devaluation below the equilibrium is greater than the interest rate. A linear model suggests that China may have been losing money from excessive devaluation of renminbi since 2002.