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Foreign Exchange Intervention and International Policy Coordination: Comparing the G-3 and EMS Experience


  • Weber, Axel A


The paper aims to develop understanding of why and how central banks have intervened in foreign exchange markets, and whether intervention was (i) coordinated, (ii) sterilized, and (iii) effective. The experience in the G-3 context is compared with the past EMS experience. In addition to foreign exchange intervention, the issue of international monetary policy coordination is discussed, again both within the G-3 and the EMS context. It is shown that the G-3 countries have relied primarily on coordinated intervention without any significant commitment to other forms of policy coordination in stabilizing exchange rates. The EMS countries, on the other hand, have at least to some extent resorted to short-term interest rate policy coordination in addition to coordinated intervention.

Suggested Citation

  • Weber, Axel A, 1994. "Foreign Exchange Intervention and International Policy Coordination: Comparing the G-3 and EMS Experience," CEPR Discussion Papers 1038, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1038

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    References listed on IDEAS

    1. J. Michael Harrison & Michael I. Taksar, 1983. "Instantaneous Control of Brownian Motion," Mathematics of Operations Research, INFORMS, vol. 8(3), pages 439-453, August.
    2. E.O. Svensson, Lars, 1994. "Why exchange rate bands? : Monetary independence in spite of fixed exchange rates," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 157-199, February.
    3. Svensson, Lars E. O., 1991. "Target zones and interest rate variability," Journal of International Economics, Elsevier, vol. 31(1-2), pages 27-54, August.
    4. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
    5. J. Michael Harrison & Thomas M. Sellke & Allison J. Taylor, 1983. "Impulse Control of Brownian Motion," Mathematics of Operations Research, INFORMS, vol. 8(3), pages 454-466, August.
    6. Daniel Cohen & Philippe Michel, 1988. "How Should Control Theory Be Used to Calculate a Time-Consistent Government Policy?," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 263-274.
    7. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Reitz, Stefan & Taylor, Mark P., 2008. "The coordination channel of foreign exchange intervention: A nonlinear microstructural analysis," European Economic Review, Elsevier, vol. 52(1), pages 55-76, January.
    2. Flandreau, Marc, 1998. "The burden of intervention: externalities in multilateral exchange rates arrangements," Journal of International Economics, Elsevier, vol. 45(1), pages 137-171, June.

    More about this item


    Central Bank Intervention; European Monetary System; Exchange Rates; International Policy Coordination; Sterilization;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions


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