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Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?

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  • Lewis, Karen K
Abstract
The relationship between foreign exchange intervention and monetary policy underlies the question of whether sterilized interventions can affect the exchange rate. In this article, the author examines this relationship using data on U.S. foreign exchange interventions from 1985 to 1990, recently made publicly available. She examines whether interventions could be viewed as 'signaling' changes in future monetary policy variables. The author also considers whether changes in monetary policy may induce interventions in an effort by central bankers to 'lean against the wind' of exchange rate movements. Interestingly, she finds evidence both that interventions help predict monetary policy variables and that monetary variables help predict interventions. Copyright 1995 by University of Chicago Press.

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  • Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
    • Handle: RePEc:ucp:jnlbus:v:68:y:1995:i:2:p:185-214
    DOI: 10.1086/296660
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    1. Dominguez, Kathryn & Frankel, Jeffrey A., 1990. "Does Foreign Exchange Intervention Matter? Disentangling the Portfolio an Expectations Effects for the Mark," Department of Economics, Working Paper Series qt84c522k9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Lewis, Karen K., 1989. "Can learning affect exchange-rate behavior? : The case of the dollar in the early 1980's," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 79-100, January.
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    7. Kathryn Dominguez & Jeffrey A. Frankel, 1991. "Does foreign exchange intervention matter? disentangling the portfolio and expectations effects for the mark," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    8. Mishkin, Frederic S, 1982. "Monetary Policy and Short-Term Interest Rates: An Efficient Markets-Rational Expectations Approach," Journal of Finance, American Finance Association, vol. 37(1), pages 63-72, March.
    9. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
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