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A Critical Appraisal of Recent Developments in the Analysis of Foreign Exchange Intervention

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  • Vitale, Paolo

Abstract

We offer a critical review of recent developments in the study of foreign exchange intervention. In particular, we discuss some unresolved issues, such as the secrecy puzzle, the relevance of the signalling and portfolio-balance effect hypotheses, the identification of the impact of foreign exchange intervention on currency values. We suggest that: i) the unresolved nature of these issues is partly due to the absence of a market microstructure perspective in most of the existing analysis of foreign exchange intervention; and ii) that recent promising advances in this strand of research have not fully exploited the potential of such perspective.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5729.

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Date of creation: Jun 2006
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Handle: RePEc:cpr:ceprdp:5729

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Keywords: exchange rate dynamics; foreign exchange micro structure; official intervention;

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References

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  4. Sjoo, Boo & Sweeney, Richard J., 2000. "Time-varying foreign-exchange risk and central bank intervention: estimating profits from intervention and speculation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 275-286, December.
  5. Michel Beine & Oscar Bernal Diaz, 2007. "Why do Central Banks intervene secretly ?preliminary evidence of the BoJ," ULB Institutional Repository 2013/10421, ULB -- Universite Libre de Bruxelles.
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  24. Humpage, Owen F, 1999. "U.S. Intervention: Assessing the Probability of Success," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 731-47, November.
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  29. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
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  31. 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.
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  33. Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, vol. 109(458), pages 662-76, October.
  34. Payne, Richard, 2003. "Informed trade in spot foreign exchange markets: an empirical investigation," Journal of International Economics, Elsevier, vol. 61(2), pages 307-329, December.
  35. Naranjo, Andy & Nimalendran, M, 2000. "Government Intervention and Adverse Selection Costs in Foreign Exchange Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(2), pages 453-77.
  36. Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
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Cited by:
  1. Ferré Carracedo, Montserrat & Manzano, Carolina, 2008. "Market effects of foreign exchange coordinated intervention," Working Papers 2072/5366, Universitat Rovira i Virgili, Department of Economics.
  2. Michel Beine & Oscar Bernal & Jean-Yves Gnabo & Christelle Lecourt, 2007. "Intervention Policy of the BoJ: a Unified Approach," LSF Research Working Paper Series 07-19, Luxembourg School of Finance, University of Luxembourg.

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