The Effectiveness of Fed Intervention on the USD/DM Foreign Exchange Market
AbstractThis study empirically examines the effectiveness of Fed intervention on the USD/DM exchange market using an event study approach. The event window is defined as 4 (8) days prior/post an intervention. Based on the empirical analysis, the results show that when the Fed follows an "against the wind" policy, exchange rate movements are smoothed and may switch direction. The results are robust and hold for different event window definitions and sample ranges. To test whether the results are due to the exchange rate movement itself, we conduct a simple test using customer trades by the Fed. The results do not exhibit a systematic pattern. We also find that a joint intervention has a stronger impact on the exchange rate level when the Fed buys US dollars. The policy implication of our findings is that intervention in foreign exchange markets on the part of the Fed to impact the value of the US dollar is a viable policy option.
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Bibliographic InfoArticle provided by De Gruyter in its journal Global Economy Journal.
Volume (Year): 6 (2006)
Issue (Month): 2 (May)
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Web page: http://www.degruyter.com
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- Francisco Ledesma-Rodriguez & Manuel Navarro-Ibanez & Jorge Perez-Rodriguez & Simon Sosvilla-Rivero, 2011.
"Implicit bands in the yen/dollar exchange rate,"
Taylor & Francis Journals, vol. 43(10), pages 1241-1255.
- Christopher J. Neely, 2005.
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Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
- Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Working Papers 2005-030, Federal Reserve Bank of St. Louis.
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