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Sterilized Intervention, Nonsterilized Intervention, and Monetary Policy

Sterilized intervention is generally ineffective. Countries that conduct monetary policy using an overnight interbank rate as an intermediate target automatically sterilize their interventions. Unsterilized interventions can influence nominal exchange rates, but they conflict with price stability unless the underlying shocks prompting them are domestic in origin and monetary in nature. Unsterilized interventions, however, are unnecessary since standard open-market operations can achieve the same result.

JEL Classification: F3

Key Words: intervention, sterilized, exchange rate, Federal Reserve System, U.S. Treasury Ben Craig and Owen Humpage are at the Federal Reserve Bank of Cleveland. Ben Craig

Suggested citation: Craig, Ben, and Owen Humpage, 2001. “Sterilized Intervention, Nonsterilized Intervention, and Monetary Policy,” Federal Reserve Bank of Cleveland, Working Paper, no. 01-10.

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