TY  - JOUR
AU  - Obstfeld,Maurice
TI  - The Effectiveness of Foreign-Exchange Intervention:  Recent Experience
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2796
PY  - 1991
Y2  - February 1991
UR  - http://www.nber.org/papers/w2796
L1  - http://www.nber.org/papers/w2796.pdf
N1  - Author contact info:
Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu
M1  - published as Maurice Obstfeld. "The Effectiveness of Foreign-Exchange Intervention: Recent Experience, 1985- 1988 ," in William H. Branson, Jacob A. Frenkel, and Morris Goldstein, editors, "International Policy Coordination and Exchange Rate Fluctuations" University of Chicago Press (1990)

M2  - featured in NBER digest on 1989-04-01
AB  - Since the September 1985 Plaza Hotel announcement by the Group of Five industrial countries, a substantial realignment of exchange rates has been achieved. At the same time, foreign exchange market intervention, much of it concerted and much of it sterilized, has been undertaken on a scale not seen since the early 1970s This paper takes a fresh look at the effectiveness of sterilized intervention in the light of recent experience. The paper concludes that sterilized intervention, in itself, has played an unimportant role in promoting exchange-rate realignment. Instead, clear shifts in patterns of monetary and fiscal policy appear to have been the main medium-term policy factors determining currency values. Over certain shorter time periods, intervention has influenced exchange markets through a signalling channel; but this signalling effect has been operative only as a result of authorities' frequent readiness to adjust monetary policies promptly to counteract unwelcome exchange-market pressures. The paper makes some progress in formalizing reasons why intervention might enhance the credibility of messages that governments could convey as well through simple verbal announcements.
ER  -