A GENERALIZATION AND ASSESSMENT OF THE INDEX OF MANAGED FLOAT

The large literature on the optimum intensity of foreign exchange market intervention contains two alternative characterizations of the central bank's policy choice variable: (1) the central bank's intensity of intervention in the foreign exchange market and (2) the Frenkel-Aizenman (1982) index of managed float. Cuddington (1991) has shown the relation between these policy measures by deriving the FA index from a standard specification of money market equilibrium. Here, the FA index is generalized to cover situations where both sterilized and unsterilized intervention are possible.