Arguably no issue in International Macroeconomics exhibits more dissonance between academic research and policy practice than foreign-exchange intervention. The dominant view from academia is that sterilized foreign-exchange (FX) intervention has a tiny if any impact on real variables which makes it virtually useless as an independent macroeconomic policy tool. Indeed a large body of empirical literature has struggled to find a consistent link between FX intervention and macroeconomic aggregates including exchange rates. From a theory perspective this is hardly surprising especially since modern dynamic macroeconomic models often predict that FX intervention should be irrelevant (Backus and Kehoe 1989).
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