NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

U.S. Foreign-Exchange-Market Intervention during the Volcker-Greenspan Era

Michael D. Bordo, Owen F. Humpage, Anna J. Schwartz

NBER Working Paper No. 16345
Issued in September 2010
NBER Program(s):   DAE   ME

The Federal Reserve abandoned foreign-exchange-market intervention because it conflicted with the System’s commitment to price stability. By the early 1980s, economists generally concluded that, absent a portfolio-balance channel, sterilized foreign-exchange-market intervention did not provide central banks with a mechanism for systematically influencing exchange rates independent of their monetary policies. If intervention were to have anything other than a fleeting, hit-or-miss, effect on exchange rates, monetary policy had to support it. Exchange rates, however, often responded to U.S. monetary-policy initiatives, so intervention to offset or reverse those exchange-rate responses can seem a contrary policy move and can create uncertainty about the strength of the System’s commitment to price stability. That the U.S. Treasury maintained primary responsibility for foreign-exchange intervention only compounded this uncertainty. In addition, many FOMC participants feared that swap drawings and warehousing could contravene the Congressional appropriations process and, therefore, potentially pose a threat to System independence, a necessary condition for monetary-policy credibility.

download in pdf format
   (1290 K)

email paper

This paper is available as PDF (1290 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16345

Users who downloaded this paper also downloaded these:
Bordo, Humpage, and Schwartz w16647 U.S. Foreign-Exchange-Market Intervention and the Early Dollar Float: 1973 – 1981
Bordo, Humpage, and Schwartz w12662 The Historical Origins of U.S. Exchange Market Intervention Policy
Bordo, Humpage, and Schwartz w17984 Epilogue: Foreign-Exchange-Market Operations in the Twenty-First Century
Fatum and Hutchison w9648 Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan
Aizenman and Hutchison w16260 Exchange Market Pressure and Absorption by International Reserves: Emerging Markets and Fear of Reserve Loss During the 2008-09 Crisis
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us