| Abstract: |
This paper studies the consequences of having either an interventionist or a
non-interventionist central bank in the foreign exchange market, in a market
microstructure framework. Although a simple one-period model is used, it
allows the characterization of the effect of the central bank intervention on
the behaviour of dealers. The model also identifies the conditions for the
dealer that acts as the counterpart of the central bank to be better or worse
than the other dealers. The price is expected to be more informative with an
interventionist central bank. |