A Brief Empirical History of U.S. Foreign-Exchange Intervention: 1973-1995

40 Pages Posted: 21 May 2009 Last revised: 27 Aug 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Owen Humpage

Federal Reserve Bank of Cleveland

Anna J. Schwartz

City University of New York (CUNY); National Bureau of Economic Research (NBER) - NY Office

Date Written: May 19, 2009

Abstract

This paper assesses U.S. foreign-exchange intervention since the inception of generalized floating. We find that intervention was by and large ineffectual. We first identify which interventions were successful according to three criteria. Then, we test whether the number of observed successes significantly exceeds the amount that would randomly occur given the near-martingale nature of daily exchange-rate changes. Finally, we investigate whether the various characteristics of an intervention - its size, frequency, or coordination - can increase the probability of success. We find that intervention did tend to moderate same-day exchange-rate movements relative to the previous day, but this effect is not robust across subperiods or currencies and it occurs infrequently. Increasing the size of an intervention increases the probability of success, but no other variable consistently makes a difference, including coordinating interventions with other central banks.

Keywords: Foreign-exchange intervention, exchange rates, Federal Reserve

JEL Classification: F3

Suggested Citation

Bordo, Michael D. and Humpage, Owen and Schwartz, Anna J., A Brief Empirical History of U.S. Foreign-Exchange Intervention: 1973-1995 (May 19, 2009). FRB of Cleveland Working Paper No. 09-03. Available at SSRN: https://ssrn.com/abstract=1408191 or http://dx.doi.org/10.2139/ssrn.1408191

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Owen Humpage

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

Anna J. Schwartz (Contact Author)

City University of New York (CUNY) ( email )

17 Lexington Avenue
New York, NY 10010
United States

National Bureau of Economic Research (NBER) - NY Office

365 Fifth Avenue, 5th Floor
New York, NY 10016-4309
United States
212-817-7957 (Phone)

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