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Intervening against the Fed

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Rodnyansky, A., Timmer, Y. and Yago, N. (2026) Intervening against the Fed. Journal of Financial Economics, 179. 104265. ISSN 1879-2774 doi: 10.1016/j.jfineco.2026.104265

Abstract/Summary

This paper studies the effectiveness and mechanism of foreign exchange interventions (FXIs) for mitigating US monetary policy spillovers. Without interventions, contractionary US monetary policy shocks trigger foreign exchange depreciations, raise risk premiums, and induce portfolio outflows, thereby reducing foreign stock prices. The stock prices of firms with US dollar debt decline significantly more, indicating a strong role for a balance sheet channel. However, ‘‘intervening against the Fed’’ stabilizes exchange rate depreciations, the risk premium, and portfolio flows. FXIs also disproportionately cushion the reduction in stock prices for firms with US dollar debt, muting the balance sheet channel of exchange rates.

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Item Type Article
URI https://centaur.reading.ac.uk/id/eprint/128651
Identification Number/DOI 10.1016/j.jfineco.2026.104265
Refereed Yes
Divisions Henley Business School > Finance and Accounting
Publisher Elsevier
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