Foreign-exchange intervention (managed float)

Turns the template's floating exchange rate into a managed one. A leaning-against-the-wind rule responds to the real exchange rate gap, and intervention enters the UIP block directly, so the same model spans a continuum of regimes: intensity = 0 is a free float, moderate values a managed float, and large values approach a peg. Program countries — where reserves, not just the policy rate, are the operative instrument — live in the middle of that range.

Usage

block_fx_intervention(intensity = 1, persistence = 0.6, sd = 1)

Arguments

intensity

Scales both the intervention response to the RER gap and its effect on the exchange rate. 0 reproduces a free float.

persistence

Persistence of intervention (h1).

sd

Standard deviation of the discretionary intervention shock.

Value

A qpm_block().

Details

fx_int is intervention intensity, positive meaning sales of foreign exchange in support of the domestic currency (which appreciates the real exchange rate, lowering q).

Examples

float <- qpm_solve(qpm_template("bkl"))
managed <- qpm_solve(add_block(qpm_template("bkl"),
                               block_fx_intervention(intensity = 1)))
# the same risk-premium shock moves the exchange rate less under management