9311507 Dominguez The purpose of this research is to analyze the effects of central bank policies on the behavior of foreign exchange rates. Central banks have at their disposal two instruments that can influence exchange rates; monetary policy and sterilized foreign exchange rate intervention policy. Monetary policy can directly affect exchange rates, but central banks appear to use monetary policy primarily with domestic objectives in mind. Sterilized intervention operations, which change the composition rather than the number of outstanding assets, affect exchange rates in a somewhat less direct fashion than monetary operations do. Nevertheless, central banks apparently rely heavily on sterilized intervention policy. The G-5 central banks have undertaken an unprecedented number of both coordinated and unilateral intervention operations in the last seven years. The empirical evidence presented in the literature on the effectiveness of intervention is quite mixed. This project will bring together the this literature to examine the effects of U.S. and German monetary intervention policies on the dollar-mark exchange rate. The research will cover the period since the abandonment of the Bretton Woods system. This research is important because it will determine the effectiveness of recent central bank intervention as compared to past interventions, and whether intervention has its greatest effect on the level or the variance of exchange rates. ***
