«ΣΠΟΥΔΑΙ», Τόμος 46, Τεύχος 3ο-4ο, Πανεπιστήμιο Πειραιώς / «SPOUDAI», Vol. 46, No 3-4, University of Piraeus A PROPOSAL FOR AN EXHANGE RATE ADJUSTMENT IN THE PRESENCE OF INTERVENTION ACTIVITIES By Nicholas Apergis University of Macedonia Department of Economics Abstract This paper proposes a technique which adjusts exchange rate series after taking into consideration that monetary authorities intervene in the foreign exchange market whenever it seems appropriate. The results demonstrate that the majority of intervention actions are succesful, while they improve the fore- casting capability of exchange rate movements. (JEL Classification: F31) 1. Introduction This study suggests a methodology which adjusts exchange rates within the framework of target zones developed by Williamson (1983 and 1989). It has been suggested (Vinod, 1992) that wherever intervention activities occur in the market concerned (i.e., foreign exchange) it is really hard for economic researchers to identify whether these activities have been succesful or not, particularly, in case that the intervention actions tend —explicitly as in the European Monetary System or implicitly as in the U.S. (Apergis, 1992)— to restrict price movements. It has been aknowledged that the monetary authorities in many countries intervene in the foreign exchange market to affect exchange rate movements either directly, via purchases and sales that involve domestic currency holdings and foreign reserve holdings, or indirectly, as an alternative for monetary policy * The author is grateful to an anonymous referee for his valuable comments.