NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Federal Reserve as an Informed Foreign Exchange Trader: 1973 – 1995

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

NBER Working Paper No. 17425
Issued in September 2011
NBER Program(s):   DAE   ME

If official interventions convey private information useful for price discovery in foreign-exchange markets, then they should have value as a forecast of near-term exchange-rate movements. Using a set of standard criteria, we show that approximately 60 percent of all U.S. foreign-exchange interventions between 1973 and 1995 were successful in this sense. This percentage, however, is no better than random. U.S. intervention sales and purchases of foreign exchange were incapable of forecasting dollar appreciations or depreciations. U.S. interventions, however, were associated with more moderate dollar movements in a manner consistent with leaning against the wind, but only about 22 percent of all U.S. interventions conformed to this pattern. We also found that the larger the size of an intervention, the greater was its probability of success, although some interventions were inefficiently large. Other potential characteristics of intervention, notably coordination and secrecy, did not seem to influence our success rates.

download in pdf format
   (318 K)

email paper

This paper is available as PDF (318 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17425

Published: Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2012. "The Federal Reserve as an Informed Foreign Exchange Trader: 1973–1995," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 127-160, March. citation courtesy of

Users who downloaded this paper also downloaded these:
Bordo, Humpage, and Schwartz w17984 Epilogue: Foreign-Exchange-Market Operations in the Twenty-First Century
Aizenman and Jinjarak w17427 The Fiscal Stimulus of 2009-10: Trade Openness, Fiscal Space and Exchange Rate Adjustment
Bordo, Humpage, and Schwartz w16946 U.S. Intervention During the Bretton Woods Era: 1962-1973
Bordo, Humpage, and Schwartz w16345 U.S. Foreign-Exchange-Market Intervention during the Volcker-Greenspan Era
Dominguez, Hashimoto, and Ito w17362 International Reserves and the Global Financial Crisis
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

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

Contact Us