This presentation by Serra Pelin (UC Berkeley) is on the Effectiveness of Sterilized Foreign Exchange Intervention under Imperfect Financial Markets. Foreign exchange intervention (FXI) is a policy tool available to central banks which includes the selling (or buying) foreign reserves to control the movements of the exchange rate. A consequence of this is a decrease in the money supply, and an increase in the interest rates.
Sterilized FXI solves this because the central banks can buy back (or sell) an equivalent amount of government-issued bonds, allowing the money supply and policy rate to remain unchanged by intervention. This does, however lead to a change in the composition of assets held by banks. While, in theory the interest rate parity condition maximises welfare, in reality, violations thereof can have large implications to welfare.
This research asks: ‘Can Sterilized FXI be an effective policy for controlling domestic prices/volatility?’ and ‘Are the actions of policy makers justified?’
by 