Optimal Intervention Rules: A Multi-Market Approach
Ma, Kwan Chen
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https://hdl.handle.net/2142/71512
Description
Title
Optimal Intervention Rules: A Multi-Market Approach
Author(s)
Ma, Kwan Chen
Issue Date
1983
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Abstract
The various versions of intervention policy can be interpreted either to fix the price or the quantity of the market but not both. It is the objective of this paper to determine the optimal degree of official intervention which stabilizes the market.
The structure of the model is based on a microeconomic framework under a pre-determined goal and other relevant conditions. The policy rules derived accordingly indicate that the policymakers should absorb the shock originating outside the stabilize market by fixing the price of the other markets. On the other hand, shocks should be passed out of the stabilized market by fixing the quantity of this market. The complete set of rules are developed for different cases and applied to the policy selections of foreign exchange market and domestic money market.
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