U.S. Foreign-Exchange-Market Intervention and the Early Dollar Float: 1973 - 1981 / Michael D. Bordo, Owen F. Humpage, Anna J. Schwartz.

Format:

Book

Author/Creator:

Bordo, Michael D.

Contributor:

National Bureau of Economic Research.

Humpage, Owen F.

Schwartz, Anna J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16647.

NBER working paper series no. w16647

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

U.S. Foreign-Exchange-Market Intervention and the Early Dollar Float

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

The dollar's depreciation during the early floating rate period, 1973 - 1981, was a symptom of the Great Inflation. In that environment, sterilized foreign exchange interventions were ineffective in halting the dollar's decline, but showed a limited ability to smooth dollar movements. Only after the Volcker FOMC changed its monetary-policy approach and demonstrated a willingness to maintain a disinflationary stance despite severe economic weakness and high unemployment did the dollar begin a sustained appreciation. Also contributing to the ineffectiveness of the interventions was the Desk's method of operation. The small, covert interventions, particularly prior to 1977, seemed inconsistent with an expectations channel of influence, and financing intervention with short-term borrowed funds seemed inconsistent with a portfolio-balance channel of influence. The Desk never clearly articulated an intervention transmission mechanism. The episode indicated the shortcomings of sterilized intervention and led to their cessation in April 1981.

Notes:

Print version record

December 2010.