ARE FOREIGN-EXCHANGE INTERVENTION AND MONETARY-POLICY RELATED, AND DOES IT REALLY MATTER

The relationship between foreign exchange intervention and monetary policy underlies the question of whether sterilized interventions can affect the exchange rate. In this article, I examine this relationship using data on U.S. foreign exchange interventions from 1985 to 1990, recently made publicly available. I examine whether interventions could be viewed as ''signaling'' changes in future monetary policy variables. I also consider whether changes in monetary policy may induce interventions in an effort by central bankers to ''lean against the wind'' of exchange rate movements. Interestingly, I find evidence both that interventions help predict monetary policy variables and that monetary variables help predict interventions.