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Sterilized intervention, nonsterilized intervention, and monetary policy

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  • Ben Craig
  • Owen Humpage

Abstract

Sterilized intervention is generally ineffective. Countries that conduct monetary policy using an overnight, interbank rate as an intermediate target automatically sterilize their interventions. Nonsterilized interventions can influence nominal exchange rates, but they conflict with price stability unless the underlying shocks prompting them are domestic in origin and monetary in nature. Nonsterilized interventions, however, are unnecessary since standard open-market operations can achieve the same result.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0110.

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Date of creation: 2001
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Handle: RePEc:fip:fedcwp:0110

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Keywords: Foreign exchange ; Foreign exchange rates ; Monetary policy;

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References

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  1. Peiers, Bettina, 1997. " Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market," Journal of Finance, American Finance Association, American Finance Association, vol. 52(4), pages 1589-1614, September.
  2. Neely, Christopher & Weller, Paul & Dittmar, Rob, 1997. "Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 32(04), pages 405-426, December.
  3. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, American Economic Association, vol. 83(5), pages 1356-69, December.
  4. Humpage, Owen F., 2000. "The United States as an informed foreign-exchange speculator," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 10(3-4), pages 287-302, December.
  5. Reuven Glick & Michael Hutchison, 1994. "Foreign reserve and money dynamics with asset portfolio adjustment: international evidence," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 94-09, Federal Reserve Bank of San Francisco.
  6. Baillie, Richard T. & Humpage, Owen F. & Osterberg, William P., 2000. "Intervention from an information perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 10(3-4), pages 407-421, December.
  7. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
  8. Bonser-Neal, Catherine & Roley, V Vance & Sellon, Gordon H, Jr, 1998. "Monetary Policy Actions, Intervention, and Exchange Rates: A Reexamination of the Empirical Relationships Using Federal Funds Rate Target Data," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 71(2), pages 147-77, April.
  9. Stephen J. Turnovsky, 1992. "Exchange rate management: a partial review," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 99-137.
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Cited by:
  1. Jorge Iván Canales Kriljenko, 2003. "Foreign Exchange Intervention in Developing and Transition Economies," IMF Working Papers 03/95, International Monetary Fund.

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