DP1038 Foreign Exchange Intervention and International Policy Coordination: Comparing the G-3 and EMS Experience

Author(s): Axel A Weber
Publication Date: October 1994
Keyword(s): Central Bank Intervention, European Monetary System, Exchange Rates, International Policy Coordination, Sterilization
JEL(s): E58, F31, F33
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1038

The paper aims to develop understanding of why and how central banks have intervened in foreign exchange markets, and whether intervention was (i) coordinated, (ii) sterilized, and (iii) effective. The experience in the G-3 context is compared with the past EMS experience. In addition to foreign exchange intervention, the issue of international monetary policy coordination is discussed, again both within the G-3 and the EMS context. It is shown that the G-3 countries have relied primarily on coordinated intervention without any significant commitment to other forms of policy coordination in stabilizing exchange rates. The EMS countries, on the other hand, have at least to some extent resorted to short-term interest rate policy coordination in addition to coordinated intervention.