Foreign Exchange Operations and the Federal Reserve

19 Pages Posted: 17 Nov 2012

See all articles by Marvin Goodfriend

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

J. Alfred Broaddus

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 1996

Abstract

Credibility for low inflation is the cornerstone of an effective monetary policy. And public support for Fed independence is the foundation of that credibility. Fed intervention in foreign exchange markets creates doubt about whether monetary policy will pursue low inflation or exchange rate objectives. Moreover, foreign exchange operations financed by the Fed undermine the Fed's independence, especially when they involve direct loans to foreign governments. For these reasons the authors recommend that the Fed be separated completely from foreign exchange operations with the Treasury.

Suggested Citation

Goodfriend, Marvin and Broaddus, J. Alfred, Foreign Exchange Operations and the Federal Reserve (1996). FRB Richmond Economic Quarterly, vol. 82, no. 1, Winter 1996, pp. 1-19. Available at SSRN: https://ssrn.com/abstract=2125904

Marvin Goodfriend (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

J. Alfred Broaddus

Federal Reserve Banks - Federal Reserve Bank of Richmond

P.O. Box 27622
Richmond, VA 23261
United States

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