The profitability of US intervention in the foreign exchange markets

Using a formula for intervention profits in which profitability measured as of date T depends on how well intervention operations predict ex post deviations from interest parity, this paper shows that US intervention since the beginning of generalized floating in 1973 has earned profits for the US monetary authorities. Fundamental explanations for the profitability of US intervention are difficult to isolate, but statistical tests suggest that it is unlikely the profits are merely the outcome of chance or a normal return to bearing time-invariant risk.