Effective foreign exchange intervention : matching strategies with objectives

Foreign exchange intervention may be undertaken to meet a range of objectives. Empirical work conducted to test the effectiveness of intervention does not adequately address how these objectives may vary over time. As a result, these studies overwhelmingly find that foreign exchange intervention has only a transitory effect on the level or volatility of the exchange rate. These studies suggest strategies that may increase the short-term effectiveness of intervention. Intervention to pursue policy objectives should be announced, supported by macro economic policy, coordinated with other monetary authorities, and conducted "against the wind". Intervention targeting tactical objectives should be conducted secretly, "with the wind", in large size and timed for maximum impact. (International Finance / SWP)