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Working Paper
On the evolution of U.S. foreign-exchange-market intervention: thesis, theory, and institutions
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 ...
Working Paper
Sterilized intervention, nonsterilized intervention, and monetary policy
Sterilized intervention is generally ineffective. Countries that conduct monetary policy using an overnight, interbank rate as an intermediate target automatically sterilize their interventions. Nonsterilized interventions can influence nominal exchange rates, but they conflict with price stability unless the underlying shocks prompting them are domestic in origin and monetary in nature. Nonsterilized interventions, however, are unnecessary since standard open-market operations can achieve the same result.
Journal Article
Voluntary export restraints: the cost of building walls
An illustration of the cost and employment effects of Japanese voluntary export restraints on new-car imports to the U.S.
Journal Article
Dollarization and monetary sovereignty: the case of Argentina
In January, President Menim of Argentina proposed strengthening his country's commitment to monetary stability by replacing the peso with the U.S. dollar. Dollarization leaves Argentina without a lender of last resort, but the Federal Reserve's current operating procedure combines with existing Argentine arrangements to mitigate this drawback.
Journal Article
The Chinese renminbi: what’s real, what’s not
China's recent devaluation and liberalization of its exchange-rate policies will, at best, have only a temporary impact on its trade competitiveness with the United States. The type of exchange-rate regime that a country adopts matters little for its long-term international competitiveness. In addition, the recent focus on China's exchange rate diverts attention from the real problem: China?s command economy.
Journal Article
The limitations of foreign-exchange intervention: lessons from Switzerland
Since the mid-1990s, monetary authorities in most large developed countries have backed away from foreign-exchange intervention?buying and selling foreign currencies to influence exchange rates. Switzerland?s recent experience goes a long way to illustrate why: Foreign-exchange intervention did not afford the Swiss National Bank with a means of systematically affecting the franc independent of Swiss monetary policy, and it left the Bank exposed to foreign-exchange losses. To affect exchange rates, central banks must change their monetary policies.>
Working Paper
Post-Louvre intervention: did target zones stabilize the dollar?
An investigation of whether the G-3 nations (Germany, Japan, and the U.S.) successfully maintained target zones following the G-7's February 1987 Louvre meeting. Using daily, official intervention data and simultaneous-equation techniques, the authors determine that the G-3 reacted in a manner consistent with maintaining target zones, but find scant evidence that the intervention successfully influenced subsequent exchange-rate movements.
Journal Article
Communication, credibility, and price stability: lessons learned from Japan
Over the past couple of decades, central banks have been taking steps to increase the transparency of their monetary policies through clearer communications with the public. While there are many differences between the economic challenges Japan has been struggling with in the past decade and those facing U.S. and European central bankers now, we can learn a great deal about combating deflation from Japan?s experiences.
Journal Article
Paper Money and Inflation in Colonial America
Inflation is often thought to be the result of excessive money creation?too many dollars chasing too few goods. While in principle this is true, in practice there can be a lot of leeway, so long as trust in the monetary authority?s ability to keep things under control remains high. The American colonists? experience with paper money illustrates how and why this is so and offers lessons for the modern day.
Working Paper
Bretton Woods and the U.S. decision to intervene in the foreign-exchange market, 1957-1962
The deterioration in the U.S. balance of payments after 1957 and an accelerating loss of gold reserves prompted U.S. monetary authorities to undertake foreign-exchange-market interventions beginning in 1961. We discuss the events leading up to these interventions, the institutional arrangements developed for that purpose, and the controversies that ensued. Although these interventions forestalled a loss of U.S. gold reserves, in the end, they only delayed more fundamental adjustments and, in that respect, were a failure.