We formulate a market microstructure model of exchange determination we employ to investigate the impact of foreign exchange intervention on exchange rates and on foreign exchange (FX) market conditions. With our formulation we show i) how foreign exchange intervention inʿuences exchange rates...

We consider the impact of pessimism on monetary policy within a model with backward looking expectations and persistence in the dynamics of output and inflation. We show that pessimistic monetary authorities move their instruments to hedge against the worst economic shocks. With respect to their...