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On the evolution of U.S. foreign-exchange-market intervention: thesis, theory, and institutions

Michael Bordo (), Owen Humpage and Anna Schwartz

No 1113, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: Attitudes about foreign-exchange-market intervention in the United States evolved in tandem with views about monetary policy as policy makers grappled with the perennial problem of having more economic objectives than independent instruments with which to achieve them. This paper—the introductory chapter to our history of U.S. foreign exchange market intervention—explains this thesis and summarizes our conclusion: The Federal Reserve abandoned frequent foreign-exchange-market intervention because, rather than providing a solution to the instruments-versus-objectives problem, it interfered with the Federal Reserve’s ability to credibly commit to low and stable inflation. This chapter also provides a theoretical discussion of intervention, background on U.S. institutions for conducting intervention, and a roadmap to the remainder of our book.

Keywords: Foreign exchange market; Monetary policy - United States (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:fip:fedcwp:1113