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New Evidence on the Effects of Exchange Rate Intervention


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  • Martin Feldstein


The September 1985 decision of the G-5 countries to pursue coordinated intervention has been widely credited with the subsequent sharp decline of the dollar relative to other major currencies, On the surface, the dollar's decline appears as evidence that coordinated intervention can be an effective instrument of economic policy, contrary to most of the previous economic analysis of this issue. The evidence in the present paper shows that such a conclusion is unwarranted. The dollar's decline in the nine months after the G-5 agreement was generally no faster than it had been since the beginning of its decline in the spring of 1985. The only indication of discontinuity in the overall behavior of the dollar was a drop of about 4 percent that occurred immediately after the G-5 meeting and that has largely persisted. Although this evidence cannot be taken as a conclusive indication that coordinated intervention had no effect on the dollar’s rate of decline, it does show the inappropriateness of interpreting the dollar's decline after September 1985 as evidence that coordinated intervention was effective. The special case of the Japanese yen is more ambiguous. Unlike all of the other G-5 currencies, the yen did appreciate more rapidly after the €5-5 meeting than it did before. But the Japanese government was also unique in making a major shift in monetary policy immediately after the G-5 meeting to strengthen the yen and the yen was also the major currency that could be expected to appreciate most as a result of the massive and unexpected decline of the price of oil in the first half of 1986.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2052.

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Date of creation: Oct 1986
Date of revision:
Publication status: Published as "New Evidence on the Distribution of Unemployment Insurance Benefits", NTJ, Vol. 30, no. 2 (1977): 219-221.
Handle: RePEc:nbr:nberwo:2052

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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Feldstein, Martin, 1986. "U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle," American Economic Review, American Economic Association, vol. 76(2), pages 342-46, May.
  2. Maurice Obstfeld, 1985. "Floating Exchange Rates: Experience and Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 369-464.
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Cited by:
  1. 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.
  2. Robert Andrew & John Broadbent, 1994. "Reserve Bank Operations in the Foreign Exchange Market: Effectiveness and Profitability," RBA Research Discussion Papers rdp9406, Reserve Bank of Australia.
  3. Martin Feldstein, 1993. "The Dollar and the Trade Deficit in the 1980s: A Personal View," NBER Working Papers 4325, National Bureau of Economic Research, Inc.


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