International Finance Discussion Papers

Foreign Currency Operations: An Annotated Bibliography Hali J. Edison 1990-380  (May 1990)

Abstract:  This paper is an annotated bibliography of recent research on foreign exchange market intervention. Most of the paper is devoted to empirical studies of the effectiveness of intervention.

The paper describes the analytical framework within which most of this research has been conducted. Researchers have identified two principal channels through which sterilized intervention has its effects: the portfolio balance channel and the expectations or signalling channel. The great bulk of formal statistical tests of the effectiveness of sterilized intervention operating through the portfolio balance channel (influencing the relative supplies of bonds denominated in different currencies) have not found a quantitatively significant effect for sterilized intervention. In all of the much smaller number of studies of the expectations channel (influencing the expected future exchange rate), intervention has been found to have at least some statistically significant effect; most of these studies do not assess the quantitative significance of the effects that researchers found.

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