02271cas a2200241 a 4500 AALejournalIMF010485 230101c9999 xx r poo 0 0eng d 15.00 USD 9781451972672 1020-7635 BD-DhAAL BD-DhAAL International Monetary Fund. Research Dept. IMF Staff papers : Volume 28 No. 3. Washington, D.C. : International Monetary Fund, 1981. 1 online resource (208 pages) IMF Staff Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper surveys theoretical issues and empirical evidence on the effects of central bank intervention in foreign exchange markets on exchange rate movements. The focus is on the ability of fully sterilized intervention to influence exchange rates in a predictable manner. Theoretical considerations suggest that the exchange rate may be affected by intervention if assets denominated in different currencies are imperfect substitutes, thus creating opportunities for intervention (undertaken for portfolio balance reasons) to modify interest differentials and, hence, the exchange rate. The same conclusion emerges when one looks at the effects of intervention on risk premiums in the foreign exchange markets, on differences between offshore and domestic interest rates, and on covered international interest differentials. The lack of any firm evidence that portfolio balance effects resulting from intervention in foreign exchange markets affect exchange rates predictably suggests that intervention policy cannot be distinguished from general monetary policy for practical purposes. This, in turn, implies that attempts to use these two policy instruments independently may lead to lesser, rather than to greater, exchange rate stability. Mode of access: Internet IMF Staff Papers; IMF Staff Papers ; No. 1981/003 Full text available on IMF http://elibrary.imf.org/view/journals/024/1981/003/024.1981.issue-003-en.xml IMF e-Library