COMPARING THE INTENSITY OF EXCHANGE MARKET INTERVENTION WITH FRENKEL AND AIZENMAN INDEX OF MANAGED FLOAT

The large literature on the optimum intensity of foreign exchange market intervention contains two different characterizations of the central bank's policy choice variable. Most of the literature focuses on the central bank's intensity of intervention in the foreign exchange market and its implications for the domestic money supply. An important contribution by Frenkel and Aizenman (1982), however, carries out its analysis in terms of a so-called index of managed float. This note clarifies the relation between these policy measures by deriving the Frenkel-Aizenman index from a standard specification of financial market equilibrium. © 1991.