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A transaction level study of the effects of central bank intervention on exchange rates

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  • Richard Payne
  • Paolo Vitale

Abstract

We study the effects of sterilised intervention operations executed on behalf of the Swiss National Bank (SNB) using tick-by-tick transactions data between 1986 and 1995. We extend the preliminary results obtained by Fischer and Zurlinden (1991) by matching these data with intra-day indicative exchange rate quotes. Via an event study analysis we examine the effects of intervention on exchange rate returns and volatility. We find that intervention has important short-run effects on the level of exchanges rates. There are also significant intra-day effects of intervention on exchange rate volatility. All of these effects are in line with theoretical predictions and it is shown that the impact on the exchange rate level is stronger when intervention is with the market rather than when it is again the wind. Finally, we find that the market partially anticipates the information contained in interventions as the exchange rate reacts in the 15 minute interval immediately before an event.

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File URL: http://eprints.lse.ac.uk/25040/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 25040.

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Date of creation: Sep 2002
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Handle: RePEc:ehl:lserod:25040

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Keywords: Sterilised intervention; Foreign exchange market; Market microstructure;

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  1. Bhattacharya, Utpal & Weller, Paul, 1992. "The Advantage to Hiding One's Hand: Speculation and Central Bank Intervention in the Foreign Exchange Market," CEPR Discussion Papers 737, C.E.P.R. Discussion Papers.
  2. Vitale, Paolo, 1999. "Sterilised central bank intervention in the foreign exchange market," Journal of International Economics, Elsevier, vol. 49(2), pages 245-267, December.
  3. 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.
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