Foreign exchange intervention as a signal of monetary policy
Recent experience with exchange rate management has rekindled interest in the efficacy of foreign exchange intervention. While there is broad evidence that sterilized intervention has no effect on the exchange rate through a portfolio balance channel, less evidence exists on the signalling role of intervention. This article considers the signalling role of intervention for the United States and West Germany between the 1985 Plaza Accord and the October 1987 stock market crash. ; An examination of the data shows that intervention observed by the foreign exchange market did not precede changes in monetary policy in a proximate or consistent fashion. Thus the study concludes that, after the fact, intervention was not a signal of subsequent monetary policy. The study also explores the possibility that during this period participants in the foreign exchange market viewed intervention as a signal. While the daily response of the change in the deutsche mark/dollar exchange rate showed a significant effect of intervention in the early part of this sample period, the effect eroded over time as monetary authorities failed to back up intervention with monetary policy.
Volume (Year): (1991)
Issue (Month): May ()
|Contact details of provider:|| Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210|
Web page: http://www.bos.frb.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dominguez, Kathryn & Frankel, Jeffrey A., 1990.
"Does Foreign Exchange Intervention Matter? Disentangling the Portfolio an Expectations Effects for the Mark,"
Department of Economics, Working Paper Series
qt84c522k9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Kathryn Dominguez & Jeffrey A. Frankel, 1991. "Does foreign exchange intervention matter? disentangling the portfolio and expectations effects for the mark," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Kathryn M. Dominguez & Jeffrey Frankel, 1990. "Does Foreign Exchange Intervention Matter? Disentangling the Portfolio and Expectations Effects for the Mark," NBER Working Papers 3299, National Bureau of Economic Research, Inc.
- Kathryn Dominguez and Jeffrey A. Frankel., 1990. "Does Foreign Exchange Intervention Matter? Disentangling the Portfolio and Expectations Effects for the Mark," Economics Working Papers 90-133, University of California at Berkeley.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
- Dallas S. Batten & Daniel L. Thornton, 1983.
"Discount rate changes and the foreign exchange market,"
1983-016, Federal Reserve Bank of St. Louis.
- Batten, Dallas S. & Thornton, Daniel L., 1984. "Discount rate changes and the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 279-292, December.
- Lewis, Karen K., 1988. "Inflation risk and asset market disturbances: The mean-variance model revisited," Journal of International Money and Finance, Elsevier, vol. 7(3), pages 273-288, September.
- Engel, Charles & Rodrigues, Anthony P, 1989.
"Tests of International CAPM with Time-Varying Covariances,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 4(2), pages 119-138, April-Jun.
- Charles Engel & Anthony P. Rodrigues, 1987. "Tests of International CAPM with Time-Varying Covariances," NBER Working Papers 2303, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey A., 1982. "In search of the exchange risk premium: A six-currency test assuming mean-variance optimization," Journal of International Money and Finance, Elsevier, vol. 1(1), pages 255-274, January.
- Kathleen Hope Brown, 1981. "Effects of Changes in the Discount Rate on the Foreign Exchange Value of the Dollar: 1973 to 1978," The Quarterly Journal of Economics, Oxford University Press, vol. 96(3), pages 551-558.
- Rogoff, Kenneth, 1984. "On the effects of sterilized intervention : An analysis of weekly data," Journal of Monetary Economics, Elsevier, vol. 14(2), pages 133-150, September.
When requesting a correction, please mention this item's handle: RePEc:fip:fedbne:y:1991:i:may:p:39-50. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.