U.S. Foreign-Exchange-Market Intervention during the Volcker-Greenspan Era

Abstract

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Shock-Dependent Exchange Rate Pass-Through: Evidence Based on a Narrative Sign Approach

“…We consider that the exchange rate movements in the fall of 1985 were mostly caused by exogenous exchange rate shocks for the following reasons. First, the Plaza Accord was a policy initiative in the dollar foreign exchange market which signaled a shift from a "minimalist approach to intervention" to an "activist approach" of the U.S. foreign exchange policy (Bordo et al 2015). Second, the success of these coordinated interventions was by no means obvious ex-ante.…”

The Federal Reserve as an Informed Foreign-Exchange Trader: 1973-1995

“…Despite having separate legal authority for intervention, the Federal Reserve System found that it could not easily avoid participating in Treasury initiated operations. Under these circumstances, the FOMC feared, intervention must weaken confidence in the System's commitment to price stability, which at the time the committee was avidly attempting to strengthen (Broaddus and Goodfriend 1996, Goodfriend 2010, Bordo, Humpage, and Schwartz 2010b. While many other advanced countries followed suite, intervention operations never entirely ended.…”