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Working Paper

U.S. Intervention: Assessing the Probability of Success

This paper estimates the unconditional and conditional probabilities that U.S. interventions successfully smooth short-term mark-dollar and yen-dollar exchange rates. The sample period extends from February 1987 to February 1990. Assuming a binomial distribution, the number of observed successes usually is greater than one would expect to see randomly. Results from a logit model suggest that coordinated intervention has a higher probability of success than unilateral intervention. The probability of success also increases with the dollar amount of an intervention. Other conditioning variables are not significant. The paper presents a reaction function, with adjustments for the incidentally truncated nature of intervention data. Predicted values serve as instruments for intervention in the logit models.

Suggested Citation

Humpage, Owen F. 1996. “U.S. Intervention: Assessing the Probability of Success.” Federal Reserve Bank of Cleveland, Working Paper No. 96-08.