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Strained RelationsUS Foreign-Exchange Operations and Monetary Policy in the Twentieth Century$
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Michael D. Bordo, Owen F. Humpage, and Anna J. Schwartz

Print publication date: 2015

Print ISBN-13: 9780226051482

Published to Chicago Scholarship Online: September 2015

DOI: 10.7208/chicago/9780226051512.001.0001

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On the Evolution of US Foreign-Exchange-Market Intervention

On the Evolution of US Foreign-Exchange-Market Intervention

Thesis, Theory, and Institutions

(p.1) 1 On the Evolution of US Foreign-Exchange-Market Intervention
Strained Relations

Michael D. Bordo

Owen F. Humpage

Anna J. Schwartz

University of Chicago Press

In this introductory chapter, we offer a cursory overview of the book’s main thesis and helpful background information about US foreign-exchange operations. We start by briefly describing how the focus of US monetary policy shifted from exchange-rate fixity under the gold standard to price stability under a fiat-money standard and how attitudes about exchange-market operations also changed in parallel. We then define foreign-exchange intervention and draw an important distinction between sterilized and non-sterilized interventions. We argue that nonsterilizedintervention is simply a type of monetary policy. We then discuss the theoretical arguments about how sterilized intervention might affect exchange rates and offer a brief interpretation of existing empirical work. We describe the institutional arrangements for, and the mechanics of US foreign-exchange operations.

Keywords:   sterilized intervention, portfolio-balance model, expectations channel, signalling channel, Federal Reserve, US Treasury

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