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The Rise and Fall of Foreign Exchange Market Intervention

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Author Info
Anna J. Schwartz
Abstract

The premise of the paper is that the fervor for foreign exchange market intervention by U.S, and European monetary authorities has ebbed in recent years. A pattern of initial belief in the effectiveness of foreign exchange market intervention has recently been eroded, as is revealed by the absence of intervention in circumstances that in earlier times would have invoked it. Only the Bank of Japan among central banks of the developed world has not thusfar abandoned its faith that intervention can change the relative value of the yen as determined by market forces to conform with its notion of what that value should be. To explain why U.S. and European monetary authorities no longer believe that intervention is a tool that works, I review the equivocal record of past episodes, the inconclusive results of empirical research, and the problems of implementation that intervention advocates ignore.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7751.

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Date of creation: Jun 2000
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Handle: RePEc:nbr:nberwo:7751

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E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
F3 - International Economics - - International Finance

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  1. Richard N. Cooper & Jane Sneddon Little, 2000. "U.S. monetary policy in an integrating world: 1960 to 2000," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Oct, pages 77-121. [Downloadable!]
  2. Peter Brandner & Harald Grech, 2002. "Why Did Central Banks Intervene in the EMS? The Post-1993 Experience," WIFO Working Papers 192, WIFO. [Downloadable!]
  3. Francisco Ledesma-Rodríguez & Manuel Navarro-Ibáñez & Jorge Pérez-Rodríguez & Simón Sosvilla-Rivero, 2006. "Implicit Bands in the Yen/Dollar Exchange Rate," Working Papers 2006-19, FEDEA. [Downloadable!]
  4. Hernández Monsalve, Mauricio Alberto & Mesa Callejas, Ramón Javier, 2006. "El efecto de las intervenciones cambiarias: la experiencia colombiana 2004-2006," MPRA Paper 942, University Library of Munich, Germany, revised Oct 2006. [Downloadable!]
    Other versions:
  5. Chris D'Souza, 2002. "A Market Microstructure Analysis of Foreign Exchange Intervention in Canada," Working Papers 02-16, Bank of Canada. [Downloadable!]
  6. Peter Brandner & Harald Grech & Helmut Stix, 2001. "The Effectiveness of Central Bank Intervention in the EMS. The Post 1993 Experience," WIFO Working Papers 168, WIFO. [Downloadable!]
    Other versions:
  7. Jonathan Kearns & Roberto Rigobon, 2002. "Identifying the Efficacy of Central Bank Interventions: The Australian Case," NBER Working Papers 9062, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Jonathan Kearns & Roberto Rigobon, 2003. "Identifying the Efficacy of Central Bank Interventions: Evidence from Australia," RBA Research Discussion Papers rdp2003-04, Reserve Bank of Australia. [Downloadable!]
  9. Christopher J. Neely, 2007. "Central bank authorities’ beliefs about foreign exchange intervention," Working Papers 2006-045, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  10. Peter Bofinger & Timo Wollmershäuser, 2003. "Managed Floating as a Monetary Policy Strategy," Economic Change and Restructuring, Springer, vol. 36(2), pages 81-109, June. [Downloadable!] (restricted)
  11. Christian A. Johnson, 2000. "Un Modelo de Intervención Cambiaria," Working Papers Central Bank of Chile 90, Central Bank of Chile. [Downloadable!]
  12. Reitz, Stefan & Taylor, Mark P., 2006. "The coordination channel of foreign exchange intervention: a nonlinear microstructural analysis," Discussion Paper Series 1: Economic Studies 2006,08, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  13. Eduardo José Araújo Lima & Benjamin Miranda Tabak, 2008. "Exchange Rate Dynamics and the Relationship between the Random Walk Hypothesis and Official Interventions," Working Papers Series 173, Central Bank of Brazil, Research Department. [Downloadable!]
  14. Zoe McLaren, 2002. "The Effectiveness Of Reserve Bank Of Australia Foreign Exchange Intervention," Department of Economics - Working Papers Series 849, The University of Melbourne. [Downloadable!]
  15. Tomas Holub, 2004. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Research and Policy Notes 2004/01, Czech National Bank, Research Department. [Downloadable!]
    Other versions:
  16. Mauricio Alberto Hernández Monsalve & Ramón Javier Mesa, 2006. "La experiencia colombiana bajo un régimen de fluctuación controlada del tipo de cambio: el papel de las intervenciones bancarias," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 65, pages 37-72, Julio-Dic. [Downloadable!]
    Other versions:
  17. Piti Disyatat & Gabriele Galati, 2005. "The effectiveness of foreign exchange intervention in emerging market countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 97-113 Bank for International Settlements. [Downloadable!]
  18. Reitz, Stefan, 2002. "Central Bank Intervention and Exchange Rate Expectations: Evidence from the Daily DM/US-Dollar Exchange Rate," Discussion Paper Series 1: Economic Studies 2002,17, Deutsche Bundesbank, Research Centre. [Downloadable!]
  19. Eric Hillebrand & Gunther Schnabl, 2004. "The Effects of Japanese Foreign Exchange Intervention: GARCH Estimation and Change Point Detection," International Finance 0410008, EconWPA. [Downloadable!]
    Other versions:
  20. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, vol. 3(3), pages 341-352, December. [Downloadable!] (restricted)
  21. Stefan Reitz & M.P Taylor, 2006. "The Coordination Channel of Foreign Exchange Intervention," Computing in Economics and Finance 2006 16, Society for Computational Economics. [Downloadable!]
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