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To: mishedlo who wrote (2742)	3/23/2004 1:40:33 PM
From: Tommaso	Read Replies (3) \| Respond to of 116555

I never did understand that term either, and this definition does not help me much: Equitrend Glossary of Financial Terms Glossary Index \| A \| B \| C \| D \| E \| F \| G \| H \| I \| J \| K \| L \| M \| N \| O \| P \| Q \| R \| S \| T \| U \| V \| W \| X \| Y \| Z \| Sterilized Intervention Situation where authorities lower their risk by insulating their domestic money supply from foreign exchange with offsetting sales, or t he purchase of domestic assets.

To: mishedlo who wrote (2742)	3/23/2004 1:54:37 PM
From: CalculatedRisk	Read Replies (2) \| Respond to of 116555

Sterilized vs. unsterilized. Here is an example: If Japan prints Yen, buys dollars ... the amount of Yen in circulation increases by the amount of Yen printed. This is called "unsterilized" since it increases the money supply. If Japan prints Yen, buys dollars AND then sells Japanese treasuries to raise the equal amount of Yen ... there is no increase in the money supply. This is called "sterilized". Earlier I argued that one of the reasons Japan might be buying dollars was to increase their money supply. But this would only work if the intervention was unsterilized. That is why tooearly is posting that it looks like I am wrong ... the intervention is apparently sterilized and Japan is not using this technique to increase the money supply.

To: mishedlo who wrote (2742)	3/23/2004 2:02:24 PM
From: Tommaso	Respond to of 116555

This helps me some: Intervention is sterilized. Additionally, U.S. foreign exchange intervention is routinely sterilized by the Federal Reserve. This means, for example, that any money-expanding purchases of foreign exchange is offset ("sterilized") by an equivalent amount of money-contracting (dollar-denominated) security sales so that no net change in reserves, money, or short-term interest rates occurs. Thus, policy fundamentals do not change. Since sterilized intervention does not change fundamentals or the stance of policy, professional economists for the most part believe that sterilized intervention has little lasting effect on foreign exchange markets. A good deal of empirical research supports this position. In other words, sterilized intervention is not the separate policy tool that many purport it to be. house.gov