Working Paper: NBER ID: w14657
Authors: Michael D. Bordo; Ronald MacDonald; Michael J. Oliver
Abstract: We provide the first econometric study of foreign exchange market intervention for the UK during the sterling crises from 1964-1967. We use daily data on spot and forward dollar/sterling exchange rates and reserve movements which allows a more precise description of the loss of credibility during four currency crises. Reserve losses are consistent with exchange rate crises. External assistance given to sterling throughout this period shored up the reserves and allowed the sterling peg to be maintained.
Keywords: Sterling; Currency Crises; Foreign Exchange Market; Reserve Management
JEL Codes: N1; N14; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Poor monetary and fiscal policies (E65) | Reserve losses (G33) |
| Reserve losses (G33) | Credibility of the peg (E51) |
| International rescue loans (F34) | Maintenance of the sterling peg (F33) |
| Reserve movements (F32) | Expected rate of realignment of sterling (F33) |
| Bank of England's interventions (E58) | Exchange rate changes (F31) |