Does Foreign Exchange Intervention Signal Future Monetary Policy?

Graciela Kaminsky () and Karen Lewis

No 4298, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E5 F4 (search for similar items in EconPapers)
Date: 1993-03
Note: ME IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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

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Related works:
Journal Article: Does foreign exchange intervention signal future monetary policy? (1996)
Working Paper: Does foreign exchange intervention signal future monetary policy? (1996)
Working Paper: Does foreign exchange intervention signal future monetary policy? (1993)
Working Paper: Does Foreign Exchange Intervention Signal Future Monetary Policy? (1992)
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