NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Foreign Exchange Intervention Signal Future Monetary Policy?

Graciela Kaminsky, Karen K. Lewis

NBER Working Paper No. 4298
Issued in March 1993
NBER Program(s):   ME   IFM

A frequently cited explanation for why sterilized interventions may affect exchange rates is that these interventions signal central banks' future monetary policy intentions. This explanation presumes that central banks in fact back up interventions with subsequent changes in monetary policy. We empirically examine this hypothesis using data on market observations of U.S. intervention together with monetary policy variables, and exchange rates. We strongly reject the hypothesis that interventions convey no signal. However, we also find that in some episodes, intervention signaled changes in monetary policy in the opposite direction of the conventional signaling story. This finding can explain why in some periods exchange rates moved in the opposite direction of that suggested by intervention.

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Document Object Identifier (DOI): 10.3386/w4298

Published: Journal of Monetary Economics, vol. 37, no. 2, (April 1996), pp. 285-312. citation courtesy of

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