An algorithmic approach to exchange rate stabilization

In this paper we explore the effect of central bank interventions on the behavior of the exchange rate. In particular, we present two control algorithms, namely the 'Target Zone' and the 'Target Value', and we test their effectiveness in stabilizing the exchange rate. To this purpose, we use a chartist-fundamentalist model and we find that both algorithms reduce exchange rate variability significantly even in the presence of policy lags and dynamic noise.