— The crisis showed the assumption that keeping inflation under control is a sufficient condition to ensure a stable economy is not valid anymore. As economies are more and more interconnected and the flow of capital is free, foreign exchange interventions become a tool used by many economies in order to protect against unfavourable fluctuations in the exchange rate. Empirical research has shown that it cannot be provided a recipe that guarantees the success of such operations and that a successful stance cannot be maintained for a long period of time, because the necessary adjustments will be inevitable. Also, maintaining foreign exchange reserves and intervening on the market involves costs. Overall, foreign exchange interventions remain a research topic of interest, because the exchange rate fluctuations affect the balance sheets of banks, companies and, increasingly, even households.
— FX intervention, exchange rate, monetary policy, sterilization.
Bogdan Badescu is with the Bucharest University of Economic Studies, Bucharest, Romania (e-mail: firstname.lastname@example.org).
Cite: Bogdan Badescu, " Foreign Exchange Interventions as an Unconventional Monetary Policy Instrument — An Empirical Review," Journal of Economics, Business and Management vol. 4, no. 1, pp. 29-35, 2016.