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In a four-factor asset-pricing model estimated on daily data, Fed intervention significantly affects betas of surprises in the market return, expected inflation rate, yield curve, and corporate-bond risk premium. Fed foreign-currency sales cause economically and statistically significant increases in the systematic risk premium in appreciation and thus in the dollar's expected appreciation rate, the direction the Fed desires, and consistent with the signaling but not the portfolio balance channel. Intervention's effects on actual appreciation are less reliable; they depend on unpredictable risk-factor realizations. Even successful intervention to strengthen the dollar may be costly; by increasing the dollar's systematic risk, intervention reduces the attractiveness of U.S. relative to foreign investments. Further, uncertainty about future Fed interventions may induce resource misallocation: ceteris paribus, investors find it harder to estimate risk-adjusted discount rates and forecast the home-currency value of cash flows. JEL classifications: F31; G12; G15 Keywords: Foreign-exchange intervention; Asset pricing models; Foreign-exchange market efficiency; Portfolio balance channel; Signaling channel

Substantial evidence sustains the belief that real exchange rates do not possess unit roots but instead demonstrate mean reversion. Longer time horizons enhance the performance of the approximated forecast models in relation to the standard driftless random walks. Longer estimation durations especially enhance performance in relation to the benchmark. The forecasting power in simple statistical model appears authentic, however, the models resolve only a modest part of the uncertainty concerning the revolution of real exchange rates.

The stationarity of real exchange rates over the recent flexible exchange rate period is an issue that has long bedeviled researchers in international finance. Using a constrained multivariate framework, this paper provides the strongest evidence yet that real exchange rates were mean-reverting over the 1973-93 period. We also investigate shifts in long-run real exchange rates, which may be important for the purpose of forecasting. Out-of-sample forecasting shows that the random walk model is outperformed by a mean-stationary model, especially at long horizons. In addition, there are substantial forecasting benefits from using a multivariate approach. (JEL C22, F21). Copyright [C] 1996 Elsevier Science Ltd

Milton Friedman's theory of the business cycle implies two empirical regularities tested for here. One regularity is that business cycles are asymmetric: The size of a contraction affects the size of the following expansion, but not vice versa. The second regularity is that a supply-side ceiling to aggregate output limits the size of expansions. Friedman's correlation methods yield only very weak support for the asymmetry hypothesis when applied to real GNP data of eight OECD countries. A time series model with a ceiling component fits the data well for a majority of the countries., I. INTRODUCTION Milton Friedman |1969; 1993~ discusses two empirical business cycle regularities he finds in U.S. data and conjectures that they may exist in other countries' data. First, Friedman argues [...]

This study presents evidence on risk-adjusted profits for the Swedish central bank. Estimated profits can be quite sensitive as to whether rates of return are risk-adjusted or not, and how the risk-adjustment is done. Various ways of adjusting for abnormal returns, and extracting buy--sell signals, are tried. Results, on daily data, support the view that Riksbank intervention did not make risk-adjusted losses over the period 1986-1990. The results might be challenged as arising from inappropriate risk adjustment. [C] 2001 Elsevier Science Ltd. All rights reserved. JEL classification: F31 Keywords: Foreign-exchange intervention; Foreign-exchange markets; Central bank intervention; Central bank profits, This study presents evidence on risk-adjusted profits for the Swedish central bank. Estimated profits can be quite sensitive as to whether rates of return are risk-adjusted or not, and how the risk-adjustment is done. Various ways of adjusting for abnormal returns, and extracting buy--sell signals, are tried. Results, on daily data, support the view that Riksbank intervention did not make risk-adjusted losses over the period 1986-1990. The results might be challenged as arising from inappropriate risk adjustment. [C] 2001 Elsevier Science Ltd. All rights reserved. JEL classification: F31 Keywords: Foreign-exchange intervention; Foreign-exchange markets; Central bank intervention; Central bank profits