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Dollar intervention and the deutschemark-dollar exchange rate: a daily time-series model

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  • Owen F. Humpage

Abstract

This paper develops a simultaneous time-series model to investigate the daily interactions between official exchange-market intervention and movements in the deutschemark-dollar exchange rate, from November 2, 1978, to October 31, 1979. the model is constructed using both morning-opening and afternoon-closing exchange-rate quotes, Using these two quotes, and making assumptions about the timing of intervention relative to the exchange-rate quotes, enables us to measure the causal relationships among contemporaneous variables, the results suggest that, over the period investigated, the Federal Reserve responded to exchange-rate movements in a manner consistent with a leaning-against-the-wind strategy, but that this intervention tended to accentuate slightly movements in the rate. This result seems to support claims that traders recognized intervention and traded against it.

Suggested Citation

  • Owen F. Humpage, 1984. "Dollar intervention and the deutschemark-dollar exchange rate: a daily time-series model," Working Papers (Old Series) 8404, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:8404
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    Citations

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    Cited by:

    1. Muhammad Kashif Ali Shah & Zulfiqar Hyder & Muhammad Khalid Pervaiz, 2009. "Central bank intervention and exchange rate volatility in Pakistan: an analysis using GARCH-X model," Applied Financial Economics, Taylor & Francis Journals, vol. 19(18), pages 1497-1508.
    2. Humpage, Owen F. & Osterberg, William P., 1992. "Intervention and the foreign exchange risk premium: An empirical investigation of daily effects," Global Finance Journal, Elsevier, vol. 3(1), pages 23-50.
    3. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, vol. 87(Nov), pages 685-718.
    4. Pasquariello, Paolo, 2007. "Informative trading or just costly noise? An analysis of Central Bank interventions," Journal of Financial Markets, Elsevier, vol. 10(2), pages 107-143, May.
    5. Owen F. Humpage, 1991. "Central-bank intervention: recent literature, continuing controversy," Economic Review, Federal Reserve Bank of Cleveland, vol. 27(Q II), pages 12-26.
    6. Robert Andrew & John Broadbent, 1994. "Reserve Bank Operations in the Foreign Exchange Market: Effectiveness and Profitability," RBA Research Discussion Papers rdp9406, Reserve Bank of Australia.

    More about this item

    Keywords

    Foreign exchange administration;

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