On the Evolution of U.S. Foreign-Exchange-Market Intervention: Thesis, Theory, and Institutions
Michael D. Bordo
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Federal Reserve Bank of Cleveland
National Bureau of Economic Research (NBER)
June 22, 2011
FRB of Cleveland Working Paper No. 11-13
Attitudes about foreign-exchange-market intervention in the United States evolved in tandem with views about monetary policy as policy makers grappled with the perennial problem of having more economic objectives than independent instruments with which to achieve them. This paper - the introductory chapter to our history of U.S. foreign exchange market intervention - explains this thesis and summarizes our conclusion: The Federal Reserve abandoned frequent foreign-exchange-market intervention because, rather than providing a solution to the instruments-versus-objectives problem, it interfered with the Federal Reserve’s ability to credibly commit to low and stable inflation. This chapter also provides a theoretical discussion of intervention, background on U.S. institutions for conducting intervention, and a roadmap to the remainder of our book.
Number of Pages in PDF File: 30
Keywords: intervention, portfolio-balance, signaling, coordination
JEL Classification: F3, N1, N2working papers series
Date posted: June 22, 2011
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