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Working Paper
Bretton Woods and the U.S. decision to intervene in the foreign-exchange market, 1957-1962
The deterioration in the U.S. balance of payments after 1957 and an accelerating loss of gold reserves prompted U.S. monetary authorities to undertake foreign-exchange-market interventions beginning in 1961. We discuss the events leading up to these interventions, the institutional arrangements developed for that purpose, and the controversies that ensued. Although these interventions forestalled a loss of U.S. gold reserves, in the end, they only delayed more fundamental adjustments and, in that respect, were a failure.
Working Paper
Government intervention in the foreign exchange market
This article offers a survey of the literature on foreign exchange intervention, including sections on the theoretical channels through which intervention might affect exchange rates and a summary of the empirical findings. The survey emphasizes that intervention is intended to provide monetary authorities with an means of influencing their exchange rates independent from monetary policy, and tends to evaluate theoretical channels and empirical results from this perspective.
Working Paper
U.S. foreign-exchange-market intervention during the Volcker-Greenspan era
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. ...
Working Paper
U.S. intervention and the early dollar float: 1973-1981
The dollar?s depreciation during the early floating rate period, 1973?1981, was a symptom of the Great Inflation. In that environment, sterilized foreign exchange interventions were ineffective in halting the dollar?s decline, but they showed a limited ability to smooth dollar movements. Only after the Volcker FOMC changed its monetary-policy approach and demonstrated a willingness to maintain a disinflationary stance despite severe economic weakness and high unemployment did the dollar begin a sustained appreciation. Also contributing to the ineffectiveness of the interventions was the ...
Speech
Remarks at the celebration of the 10th anniversary of CLS
Comments at the 10th Anniversary of CLS, New York City.
Working Paper
A brief empirical history of U.S. foreign-exchange intervention: 1973-1995
This paper assesses U.S. foreign-exchange intervention since the inception of generalized floating. We find that intervention was by and large ineffectual. We first identify which interventions were successful according to three criteria. Then, we test whether the number of observed successes significantly exceeds the amount that would randomly occur given the near-martingale nature of daily exchange-rate changes. Finally, we investigate whether the various characteristics of an intervention - its size, frequency, or coordination - can increase the probability of success. We find that ...
Working Paper
Swedish intervention and the Krona float, 1993–2002
Using a set of standard success criteria, we show that Riksbank foreign-exchange interventions between 1993 and 2002 lacked forecast value; that is, the observed number of successes was not significantly greater--and usually substantially smaller--than the number one would anticipate given the martingale nature of exchange-rate movements. Under some success criteria, the Riksbank exhibited negative forecast value, implying that the market could have profited by taking a position opposite that of the bank. Moreover, the likelihood of success was independent of such conditioning factors as the ...
Report
Dollarization and financial integration
How does a country's choice of exchange rate regime impact its ability to borrow from abroad? We build a small open economy model in which the government can potentially respond to shocks via domestic monetary policy and by international borrowing. We assume that debt repayment must be incentive compatible when the default punishment is equivalent to permanent exclusion from debt markets. We compare a floating regime to full dollarization. ; We find that dollarization is potentially beneficial, even though it means the loss of the monetary instrument, precisely because this loss can ...
Working Paper
Dollar intervention and the deutschemark-dollar exchange rate: a daily time-series model
This paper develops a simultaneous time-series model to investigate the daily interactions between official exchange-market intervention and movements in the deutschemark-dollar exchange rate, from November 2, 1978, to October 31, 1979. the model is constructed using both morning-opening and afternoon-closing exchange-rate quotes, Using these two quotes, and making assumptions about the timing of intervention relative to the exchange-rate quotes, enables us to measure the causal relationships among contemporaneous variables, the results suggest that, over the period investigated, the Federal ...
Working Paper
U.S. intervention during the Bretton Wood Era:1962-1973
By the early 1960s, outstanding U.S. dollar liabilities began to exceed the U.S. gold stock, suggesting that the United States could not completely maintain its pledge to convert dollars into gold at the official price. This raised uncertainty about the Bretton Woods parity grid, and speculation seemed to grow. In response, the Federal Reserve instituted a series of swap lines to provide central banks with cover for unwanted, but temporary accumulations of dollars and to provide foreign central banks with dollar funds to finance their own interventions. The Treasury also began intervening in ...