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Daily effects of foreign exchange intervention: Evidence from official Bank of Canada data

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  • Fatum, Rasmus

Abstract

This paper analyzes the effects of official, daily Bank of Canada intervention in the CAD/USD exchange rate over the 1995-1998 period. Using an event study methodology and different criteria for effectiveness, some evidence that intervention was systematically associated with both a change in the direction and a smoothing of the exchange rate is presented. The results of the analysis, however, do not suggest that Bank of Canada intervention succeeded in reducing the volatility of the CAD/USD exchange rate. Furthermore, the paper shows that the effects of intervention are weakened when adjusting for general currency co-movements against the USD.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 3 (April)
Pages: 438-454

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:3:p:438-454

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Web page: http://www.elsevier.com/locate/inca/30443

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References

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  1. 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.
  2. Kathryn M.E. Dominguez, 2003. "When Do Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange Rate Movements?," NBER Working Papers 9875, National Bureau of Economic Research, Inc.
  3. Fatum, Rasmus & Hutchison, Michael M., 2003. "Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan," Santa Cruz Department of Economics, Working Paper Series qt2883n7z5, Department of Economics, UC Santa Cruz.
  4. Jeff M. Rogers & Pierre Siklos, 2001. "Foreign Exchange Market Intervention in Two Small Open Economies: The Canadian and Australian Experience," Research Paper Series 57, Quantitative Finance Research Centre, University of Technology, Sydney.
  5. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  6. Christopher J. Neely, 2000. "The practice of central bank intervention: looking under the hood," Working Papers 2000-028, Federal Reserve Bank of St. Louis.
  7. Beine, Michel, 2004. "Conditional covariances and direct central bank interventions in the foreign exchange markets," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1385-1411, June.
  8. Rasmus Fatum & Michael M. Hutchison, . "Is Sterilized Foreign Exchange Intervention Effective After All? An Event Study Approach," EPRU Working Paper Series 99-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  9. Michel Beine & Sébastien Laurent & Christelle Lecourt, 2003. "Official central bank interventions and exchange rate volatility: evidence from a regime-switching analysis," ULB Institutional Repository 2013/10437, ULB -- Universite Libre de Bruxelles.
  10. Fatum, Rasmus, 2000. "On the effectiveness of sterilized foreign exchange intervention," Working Paper Series 0010, European Central Bank.
  11. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland.
  12. Hong Liang & Paul Cashin & Hali J. Edison, 2003. "Foreign Exchange Intervention and the Australian Dollar," IMF Working Papers 03/99, International Monetary Fund.
  13. Chris D'Souza, 2002. "A Market Microstructure Analysis of Foreign Exchange Intervention in Canada," Working Papers 02-16, Bank of Canada.
  14. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements.
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Citations

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Cited by:
  1. Nikkinen, Jussi & Vähämaa, Sami, 2009. "Central bank interventions and implied exchange rate correlations," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 862-873, December.
  2. Neely, Christopher J., 2008. "Central bank authorities' beliefs about foreign exchange intervention," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 1-25, February.
  3. Vithessonthi, Chaiporn, 2014. "Monetary policy and the first- and second-moment exchange rate change during the global financial crisis: Evidence from Thailand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 170-194.
  4. Lukas Menkhoff, 2010. "High-Frequency Analysis Of Foreign Exchange Interventions: What Do We Learn?," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 85-112, 02.
  5. Balazs Egert, 2006. "Central Bank Interventions, Communication and Interest Rate Policy in Emerging European Economies," IEHAS Discussion Papers 0615, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  6. Pierre L. Siklos & Diana N. Weymark, 2006. "Measuring the Impact of Intervention on Exchange Market Pressure," Vanderbilt University Department of Economics Working Papers 0604, Vanderbilt University Department of Economics.
  7. 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.
  8. Vithessonthi, Chaiporn & Tongurai, Jittima, 2013. "Unremunerated reserve requirements, exchange rate volatility, and firm value," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 358-378.
  9. Balázs Égert, 2006. "Central Bank Interventions, Communication & Interest Rate Policy in Emerging European Economies," William Davidson Institute Working Papers Series wp846, William Davidson Institute at the University of Michigan.
  10. Vithessonthi, Chaiporn & Tongurai, Jittima, 2013. "The perils of a central bank's capital control: How substantial is the effect on firm value?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 111-135.
  11. Kathryn M.E. Dominguez & Rasmus Fatum & Pavel Vacek, 2010. "Does Foreign Exchange Reserve Decumulation Lead to Currency Appreciation?," EPRU Working Paper Series 2010-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  12. Pontines, Victor & Siregar, Reza, 2009. "Intervention index and exchange rate regimes: the cases of selected East-Asian economies," MPRA Paper 17138, University Library of Munich, Germany.
  13. repec:onb:oenbwp:y::i:134:b:1 is not listed on IDEAS

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