Working Paper: CEPR ID: DP1038
Authors: Axel A. Weber
Abstract: The paper aims to develop understanding of why and how central banks have intervened in foreign exchange markets, and whether intervention was (i) coordinated, (ii) sterilized, and (iii) effective. The experience in the G-3 context is compared with the past EMS experience. In addition to foreign exchange intervention, the issue of international monetary policy coordination is discussed, again both within the G-3 and the EMS context. It is shown that the G-3 countries have relied primarily on coordinated intervention without any significant commitment to other forms of policy coordination in stabilizing exchange rates. The EMS countries, on the other hand, have at least to some extent resorted to short-term interest rate policy coordination in addition to coordinated intervention.
Keywords: central bank intervention; sterilization; international policy coordination; exchange rates; European monetary system
JEL Codes: E58; F31; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| G3 interventions (Z00) | sterilized effects (I12) |
| G3 interventions (Z00) | long-term trends in bilateral exchange rates (F31) |
| Bundesbank coordination with Federal Reserve (E58) | G3 interventions effectiveness (C90) |
| EMS countries interventions (H12) | sterilized effects (I12) |
| EMS countries interventions (H12) | long-term effects on exchange rates (F31) |