Intervention Policy under Floating Exchange Rates: An Analysis of the Swiss Case

Abstract

Empirical analyses of central bank foreign-exchange market intervention are typically cast in terms of a dichotomy between "leaning against the wind" and "exchange-rate targeting." Apparently, the profession has arrived at an almost unanimous verdict in favor of the former. Th is paper challenges the ruling consensus. Econometric estimates are c omputed on the basis of a more flexible intervention response functio n and a new proposal for removing simultaneous-equations bias in the context of intervention analyses. The obtained results suggest that, in situations of conflict, the Swiss National Bank has given priority to exchange-rate targeting over exchange-rate smoothing. Copyright 1987 by The Review of Economic Studies Limited.

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