As editors of this issue, we consider ourselves fortunate to have obtained excellent contributions from some of the foremost scholars of foreign exchange intervention. The papers span the breadth of intervention research, from historical perspective to a discussion of institutional detail, to theoretical models of intervention and empirical work that utilizes recent advances in volatility research. This work on intervention is particularly timely, given the profession's recent emphasis on microstructure, including the role of institutions and information problems.
If the beginning is a very good place to start, then the paper of Bordo, Humpage and Schwartz is a very good resource to provide historical perspective on intervention. Bordo, Humpage and Schwartz examine the historical origins of modern US foreign exchange intervention in great depth. Their study details techniques}such as early swap agreements, the ESF, and intervention under Bretton Woods}that became the foundation for practices pursued under the modern managed float.
While Bordo, Humpage and Schwartz exhaustively study the history of intervention policy, Ito's paper is surely a gold mine of information about modern Japanese intervention practices. Ito characterizes the Japanese institutional framework and to evaluate the recent Japanese experience, both in terms of effectiveness and profitability. In addition, Ito examines some conventional wisdom on intervention. For example, he questions whether it is useful to think of intervention as responding to volatility, per se, or whether it responds instead to unwelcome directions in price movements.
Perhaps the most fruitful recent line of financial research has been the emphasis on microstructure. This issue presents two intriguing and novel contributions along these lines: Vitale and Dominguez and Panthaki. Vitale argues strongly that the literature should investigate intervention through a market microstructure approach. He believes that such a perspective will produce progress on issues such as the secrecy puzzle, signalling versus portfolio balance, and the estimation of the impact of intervention. Dominguez and Panthaki use microstructure data to investigate the consequences of 'unrequited Interventions'-operations that the market expects but that do not occur. The authors show that these events influence returns, volatility and order flow, which illustrates the importance of expectations, even in the absence of actual transactions.
While not precisely a microstructural study, the paper of Beine, Lahaye, Laurent, Neely, and Palm certainly has microstructural implications. The authors use very high-frequency exchange rate data to investigate the relation of intervention to discontinuities in the data. By analysing the timing and direction of exchange rate jumps and interventions, they conclude that coordinated interventions tend to cause few,