Does foreign exchange intervention signal future monetary policy?
Graciela Kaminsky (graciela@gwu.edu) and
Karen Lewis
No 96-7, Working Papers from Federal Reserve Bank of Philadelphia
Abstract:
A frequently cited explanation for why foreign exchange interventions affect the exchange rate is that these interventions signal future monetary policy intentions. This explanation says that central banks signal a more contractionary monetary policy in the future by buying domestic currency today. Therefore, the expectations of future tighter monetary policy make the domestic currency appreciate, even though the current monetary effects of the intervention are typically offset by central banks. Of course, this explanation presumes that central banks, in fact, back up interventions with subsequent changes in monetary policy. In this paper, the authors empirically examine this presumption.
Keywords: Foreign exchange - Law and legislation; Monetary policy (search for similar items in EconPapers)
Date: 1996
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Working Paper: Does Foreign Exchange Intervention Signal Future Monetary Policy? (1992)
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