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Communication and exchange rate policy

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Author Info
Marcel Fratzscher () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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Abstract

This paper deals with the very short-term influence of "oral interventions" on the exchange rate of major currencies. The paper finds that official communication, as reported by wire services, are effective in influencing the US dollar-euro and yen-US dollar exchange rates in the desired direction on intervention days. Oral interventions are found to be substantially more effective if they deviate from the prevalent policy "mantra". They also tend to reduce market volatility whereas actual interventions raise volatility. A key result of the paper is that oral interventions are effective independently from the stance and direction of monetary policy as well as the occurrence of actual interventions. This suggests that oral interventions might constitute, on a short-term basis, an effective and largely autonomous policy tool.

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Publisher Info
Paper provided by European Central Bank in its series Working Paper Series with number 363.

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Length: 42 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:ecb:ecbwps:20040363

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Related research
Keywords: communication; exchange rate; intervention; policy; United States; euro area; Japan.;

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Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F31 - International Economics - - International Finance - - - Foreign Exchange

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References listed on IDEAS
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. Jeffrey D. Amado & Stephen Morris & Hyun Song Shin, 2003. "Communication and Monetary Policy," Cowles Foundation Discussion Papers 1405, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  2. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-16, Duke University, Department of Economics. [Downloadable!]
    Other versions:
  3. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January. [Downloadable!] (restricted)
  4. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608.
  5. 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. [Downloadable!] (restricted)
  6. Beine, Michel & Benassy-Quere, Agnes & Lecourt, Christelle, 2002. "Central bank intervention and foreign exchange rates: new evidence from FIGARCH estimations," Journal of International Money and Finance, Elsevier, vol. 21(1), pages 115-144, February. [Downloadable!] (restricted)
  7. Bonser-Neal, Catherine & Tanner, Glenn, 1996. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 853-878, December. [Downloadable!] (restricted)
  8. repec:rus:hseeco:21608 is not listed on IDEAS
  9. Baillie, Richard T. & P. Osterberg, William, 1997. "Central bank intervention and risk in the forward market," Journal of International Economics, Elsevier, vol. 43(3-4), pages 483-497, November. [Downloadable!] (restricted)
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