On the Evolution of U.S. Foreign-Exchange-Market Intervention: Thesis, Theory, and Institutions

30 Pages Posted: 22 Jun 2011

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 Schwartz

National Bureau of Economic Research (NBER)

Date Written: June 22, 2011

Abstract

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.

Keywords: intervention, portfolio-balance, signaling, coordination

JEL Classification: F3, N1, N2

Suggested Citation

Bordo, Michael D. and Humpage, Owen and Schwartz, Anna, On the Evolution of U.S. Foreign-Exchange-Market Intervention: Thesis, Theory, and Institutions (June 22, 2011). FRB of Cleveland Working Paper No. 11-13. Available at SSRN: https://ssrn.com/abstract=1870264 or http://dx.doi.org/10.2139/ssrn.1870264

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 (Contact Author)

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

Anna Schwartz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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