Chapter 13: How did they do it?
My sense is that, at the end of the day, we will ﬁnd success easier than feared by so many – that the market will more often than not respond constructively to a ﬁrm and intelligent lead by governments and exchange rate stability will reinforce prospects for growth. One thing is for sure: without trying, we will never know. Paul Volcker (1995, p. 8) If monetary authorities have succeeded in exerting signiﬁcant and lasting inﬂuence over the behaviour of the global foreign exchange market, it is important to identify clearly the factors in the episodes examined that induced market participants to modify their risk–return assessments and their expectations about the evolution of exchange rates. This exercise does not aim to identify the existence of a clear cause and eﬀect relationship between a speciﬁc policy action (be it a change in interest rates, a foreign exchange intervention or a declaration) and a speciﬁc exchange rate movement. Strategies for inﬂuencing the foreign exchange market typically comprise a complex set of policy actions that are rarely predetermined and whose implementation is decided on an ad hoc basis in relation to market performance. They may also be modiﬁed in the light of the results obtained and are carried out according to procedures agreed anew on each occasion with reference to domestic political processes or in the framework of international coordination. Still, the survey conducted provides indications concerning the conditions that have to be met in devising a...
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