A sterilized intervention leaves the money supply changed and has a direct way of affecting interest rates or the expected future exchange rate.

Question

Quizplus · Accepted Answer

A sterilized intervention involves a central bank buying or selling foreign currency in exchange for their own domestic currency, and then offsetting the impact on the money supply by engaging in a corresponding financial transaction in the domestic bond market. This means the overall money supply remains unchanged, and the intervention does not have a direct effect on interest rates or the expected future exchange rate through changes in the money supply.

A Sterilized Intervention Leaves the Money Supply Changed and Has