Does Foreign Exchange Intervention Signal Future Monetary Policy? / Graciela Kaminsky, Karen K. Lewis.

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Kaminsky, Graciela

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w4298.Publication details: Cambridge, Mass. National Bureau of Economic Research 1993.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: A frequently cited explanation for why sterilized interventions may affect exchange rates is that these interventions signal central banks' future monetary policy intentions. This explanation presumes that central banks in fact back up interventions with subsequent changes in monetary policy. We empirically examine this hypothesis using data on market observations of U.S. intervention together with monetary policy variables, and exchange rates. We strongly reject the hypothesis that interventions convey no signal. However, we also find that in some episodes, intervention signaled changes in monetary policy in the opposite direction of the conventional signaling story. This finding can explain why in some periods exchange rates moved in the opposite direction of that suggested by intervention.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w4298 (Browse shelf(Opens below))	Not For Loan

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March 1993.

A frequently cited explanation for why sterilized interventions may affect exchange rates is that these interventions signal central banks' future monetary policy intentions. This explanation presumes that central banks in fact back up interventions with subsequent changes in monetary policy. We empirically examine this hypothesis using data on market observations of U.S. intervention together with monetary policy variables, and exchange rates. We strongly reject the hypothesis that interventions convey no signal. However, we also find that in some episodes, intervention signaled changes in monetary policy in the opposite direction of the conventional signaling story. This finding can explain why in some periods exchange rates moved in the opposite direction of that suggested by intervention.