Market Responses To Coordinated Central Bank Intervention
AbstractThe scale of unilateral and coordinated intervention in the foreign exchange market by the G-5 countries has become considerably larger over the last few years, following a period in which official U.S. policy was opposed to intervention. This paper examines market responses to official sterilized central bank intervention policy over the period 1985 through 1987. The efficacy of sterilized intervention is hypothesized to depend on the market's belief that central banks both have "inside" information about future monetary policy and the incentive to reveal that information truthfully through intervention signals. Central banks may agree to coordinate their intervention operations in order to influence the market's perception of the relative importance and credibility of own signals. Market responses to intervention over the period 1985 through 1987 are examined econometrically using heretofore unavailable daily data on G-3 unilateral and coordinated intervention operations. The empirical evidence indicates that: (1) even though daily intervention data are not published, market participants were generally able to comtemporaneously observe the source and magnitude of central bank intervention operations, (2) unilateral intervention significantly influenced market expectations in some periods, and (3) coordinated intervention had a significantly different and longer-term influence on market expectations than did unilateral intervention over the three year period examined.
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Bibliographic InfoPaper provided by Harvard - J.F. Kennedy School of Government in its series Papers with number 179d.
Length: 50 pages
Date of creation: 1989
Date of revision:
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Postal: HARVARD UNIVERSITY JOHN FITZGERALD KENNEDY SCHOOL OF GOVERNMENT; CAMBRIDGE, MA 02138.
Web page: http://www.hks.harvard.edu/
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market ; central banks ; foreign exchange ; monetary policy;
Other versions of this item:
- Dominguez, Kathryn Mary, 1990. "Market responses to coordinated central bank intervention," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 121-163, January.
- Kathryn M. Dominguez, 1991. "Market Responses To Coordinated Central Bank Intervention," NBER Working Papers 3192, National Bureau of Economic Research, Inc.
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