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 quot;signalingquot; changes in future monetary policy variables. I also consider whether changes in monetary policy may induce interventions in an effort to quot;lean against the windquot; of exchange rate movements. Interestingly, I find evidence both that interventions help predict monetary policy variables, and that monetary variables help predict interventions