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The Impact of Central Bank Intervention on Exchange-Rate Forecast Heterogeneity

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Author Info
Michel Beine
Agnes Benassy-Quere
Estelle Dauchy
Ronald MacDonald

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Abstract

We investigate the impact of central bank intervention in the foreign exchange market on forecast heterogeneity. Market heterogeneity is based on a sample of forecasts made by a large number of commercial banks over two distinct periods for the DEM (or EUR) and the JPY against the USD. We show that, in general, forecast heterogeneity increases as a result of interventions, whether the interventions are unexpected (DEM-EUR) or expected (JPY). Our results also emphasise the role of rumours, especially in the YEN-USD market. In sum, official interventions are shown to move market opinions, albeit differently across the two markets.

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Paper provided by CEPII research center in its series Working Papers with number 2002-04.

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Date of creation: Apr 2002
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Handle: RePEc:cii:cepidt:2002-04

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Related research
Keywords: Central Bank Intervention; Foreign Exchange Markets; Survey Expectations; Market Micro-Structure;

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lucio Sarno & Mark P. Taylor, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September. [Downloadable!] (restricted)
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  2. Takatoshi Ito, 1990. "Foreign Exchange Rate Expectations: Micro Survey Data," NBER Working Papers 2679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Agnes Benassy-Quere & Sophie Larribeau & Ronald MacDonald, 1999. "Models of Exchange Rate Expectations : Heterogeneous Evidence From Panel Data," Working Papers 1999-03, CEPII research center. [Downloadable!]
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  4. MacDonald, Ronald, 1992. "Exchange Rate Survey Data: A Disaggregated G-7 Perspective," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 60(0), pages 47-62, Supplemen.
  5. Kenneth A. Froot & Jeffrey A. Frankel, 1989. "Interpreting Tests of Forward Discount Bias Using Survey Data on Exchange Rate Expectations," NBER Working Papers 1963, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Naranjo, Andy & Nimalendran, M, 2000. "Government Intervention and Adverse Selection Costs in Foreign Exchange Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 13(2), pages 453-77.
  7. Kathryn M. Dominguez, 1999. "The Market Microstructure of Central Bank Intervention," NBER Working Papers 7337, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February. [Downloadable!] (restricted)
  9. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December. [Downloadable!] (restricted)
  10. Richard K. Lyons, 2006. "The Microstructure Approach to Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262205x.
  11. Kim, S.J. & Kortian, T. & Sheen, J., 1999. "Central Bank Intervention and Exchange Rate Volatility- Australian Evidence," Papers 99-05, Sydney - Department of Economics.
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  12. Mark D. Flood, 1991. "Microstructure theory and the foreign exchange market," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 52-70. [Downloadable!]
  13. Chionis, Dionysios & MacDonald, Ronald, 1997. "Some tests of market microstructure hypotheses in the foreign exchange market," Journal of Multinational Financial Management, Elsevier, vol. 7(3), pages 203-229, October. [Downloadable!] (restricted)
  14. Vitale, Paolo, 1999. "Sterilised central bank intervention in the foreign exchange market," Journal of International Economics, Elsevier, vol. 49(2), pages 245-267, December. [Downloadable!] (restricted)
  15. Michel Beine & Agnes Benassy-Quere & Christelle Lecourt, 1999. "The impact of foreign exchange interventions: new evidence from FIGARCH estimations," Working Papers 1999-14, CEPII research center. [Downloadable!]
  16. Paul Hallwood & Ronald MacDonald, 2008. "International Money and Finance," Working papers 2008-02, University of Connecticut, Department of Economics. [Downloadable!]
  17. Popper, Helen & Montgomery, John D., 2001. "Information sharing and central bank intervention in the foreign exchange market," Journal of International Economics, Elsevier, vol. 55(2), pages 295-316, December. [Downloadable!] (restricted)
  18. Graham Elliott & Takatoshi Ito, 1998. "Heterogeneous Expectations and Tests of Efficiency in the Yen/Dollar Forward Exchange Rate Market," University of California at San Diego, Economics Working Paper Series 98-06, Department of Economics, UC San Diego. [Downloadable!]
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  19. Cheung, Yin-Wong & Chinn, Menzie David, 2001. "Currency traders and exchange rate dynamics: a survey of the US market," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 439-471, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Iwatsubo, Kentaro & Shimizu, Junko, 2006. "Signaling Effects of Foreign Exchange Interventions and Expectation Heterogeneity among Traders," CEI Working Paper Series 2005-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  2. Alain Jousten & Florence Legros, 2002. "Pensions and Savings in a Monetary Union: an Analysis of Capital Flows," Working Papers 2002-06, CEPII research center. [Downloadable!]
    Other versions:
  3. Lukas Menkhoff, 2008. "High-Frequency Analysis of Foreign Exchange Interventions: What do we learn?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Balázs Égert & Luboš Komárek, 2000. "Official Foreign Exchange Interventions in the Czech Republic: Did They Matter?," William Davidson Institute Working Papers Series wp760, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  5. Pierre-Philippe Combes & Miren Lafourcade & Thierry Mayer, 2003. "Can Business and Social Networks Explain the Border Effect Puzzle?," Working Papers 2003-02, CEPII research center. [Downloadable!]
    Other versions:
  6. Loic Cadiou & Julien Genet & Jean-Louis Guerin, 2002. "Evolutions demographiques et marche du travail : des liens complexes parfois contradictoires," Working Papers 2002-16, CEPII research center. [Downloadable!]
  7. Rakhsat Sleiman, 2002. "Projections demographiques de quelques pays de l'Union européenne (Allemagne, France, Italie, Royaume-Uni, Pays-Bas, Suede)," Working Papers 2002-13, CEPII research center. [Downloadable!]
  8. Balazs Egert & Amina Lahreche-Revil & Kirsten Lommatzsch, 2004. "The Stock-Flow Approach to the Real Exchange Rate of CEE Transition Economies," Working Papers 2004-15, CEPII research center. [Downloadable!]
    Other versions:
  9. Agnes Benassy-Quere & Lionel Fontagne & Amina Lahreche-Revil, 2003. "Tax Competition and Foreign Direct Investment," Working Papers 2003-17, CEPII research center. [Downloadable!]
  10. Yushi Yoshida & Jan C. Rülke, 2009. "On-Going versus Completed Interventions and Yen/Dollar Expectations - Evidence from Disaggregated Survey Data," Discussion Papers 35, Kyushu Sangyo University, Faculty of Economics. [Downloadable!]
  11. Anindya Banerjee & Paolo Zanghieri, 2003. "A New Look at the Feldstein-Horioka Puzzle using an Integrated Panel," Working Papers 2003-22, CEPII research center. [Downloadable!]
  12. Darmoul Mokhtar, 2006. "The impact of monetary policy signals on the intradaily Euro-dollar volatility," Cahiers de la Maison des Sciences Economiques bla06049, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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