Non-market determinants of exchange market interventions
While it appears that interventions in exchange markets can and have been successful during the floating rate period, it has been so only in isolated circumstances and periods, and only for very short periods of time. If intervention has no effect or a limited impact, then why do central banks intervene in the foreign exchange market to influence the path of the exchange rate? It is perhaps reasonable to conclude then that it might be used exclusively to buy time for policy makers and market participants. Effective intervention would then smooth the costs of implementing domestic policy adjustments for external balance concerns, or would prevent short-run foreign exchange market disruption.