Does Foreign Exchange Intervention Work?

Following the Versailles G-7 summit of 1982, most government officials and academic analysts downplayed the potential impact of exchange market intervention unless such intervention was permitted to affect national monetary policies. This study challenges the conventional wisdom. Using previously unavailable data on daily intervention by the US Federal Reserve and the German Bundesbank, the authors find to the contrary that even "sterilized" intervention can have an effect, especially if it is known to the markets. Implications are drawn for intervention policy and its role in the international coordination process.