U.S. Foreign-Exchange-Market Intervention during the Volcker-Greenspan Era
AbstractThe Federal Reserve abandoned foreign-exchange-market intervention because it conflicted with the System’s commitment to price stability. By the early 1980s, economists generally concluded that, absent a portfolio-balance channel, sterilized foreign-exchange-market intervention did not provide central banks with a mechanism for systematically influencing exchange rates independent of their monetary policies. If intervention were to have anything other than a fleeting, hit-or-miss, effect on exchange rates, monetary policy had to support it. Exchange rates, however, often responded to U.S. monetary-policy initiatives, so intervention to offset or reverse those exchange-rate responses can seem a contrary policy move and can create uncertainty about the strength of the System’s commitment to price stability. That the U.S. Treasury maintained primary responsibility for foreign-exchange intervention only compounded this uncertainty. In addition, many FOMC participants feared that swap drawings and warehousing could contravene the Congressional appropriations process and, therefore, potentially pose a threat to System independence, a necessary condition for monetary-policy credibility.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16345.
Date of creation: Sep 2010
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Note: DAE ME
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Other versions of this item:
- Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2010. "U.S. foreign-exchange-market intervention during the Volcker-Greenspan era," Working Paper 1007, Federal Reserve Bank of Cleveland.
- F3 - International Economics - - International Finance
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
- N2 - Economic History - - Financial Markets and Institutions
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