Monetary Policy Actions, Intervention, and Exchange Rates: A Reexamination of the Empirical Relationships Using Federal Funds Rate Target Data

We reexamine the relationships among Federal Reserve monetary‐policy actions, U.S. interventions in currency markets, and exchange rates using an alternative measure of monetary policy actions, the Federal Reserve's federal funds rate target. We find that exchange rates generally respond immediately to U.S. monetary policy actions and that these responses are usually consistent with the overshooting hypothesis. We also find evidence of signaling and leaning‐against‐the‐wind U.S. intervention policies over the sample; however, controlling for such interventions does not alter our estimates of exchange rate responses to federal funds rate target changes.