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Daily Effects of Foreign Exchange Intervention: Evidence from Official Bank of Canada Data

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Author Info
Rasmus Fatum (School of Business, University of Alberta)
Abstract

This paper analyzes the effects of official, daily Bank of Canada intervention in the CAD/USD exchange rate market over the January 1995 to September 1998 period. Using an event study methodology and different criteria for effectiveness, movements in the CAD/USD exchange rate over the 1 through 10 days surrounding intervention events are investigated. It is shown that Bank of Canada intervention was systematically associated with both a change in the direction and a smoothing of the CAD/USD exchange rate. Bank of Canada intervention did not, however, succeed in reducing the volatility of the CAD/USD exchange rate. Additionally, the paper introduces the issue of currency co-movements to the intervention literature. It is shown that the effects of intervention are weakened when adjusting for general currency co-movements against the USD, suggesting that currency co-movements should be taken into account when addressing the effects of central bank intervention aimed at managing a minor currency vis-à-vis a major currency.

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Publisher Info
Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 05-07.

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Length: 20 pages
Date of creation: Jun 2005
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Handle: RePEc:kud:epruwp:05-07

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Related research
Keywords: foreign exchange intervention; event studies; currency co-movement;

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Find related papers by JEL classification:
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
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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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. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718. [Downloadable!]
    Other versions:
  2. Beine, Michel, 2004. "Conditional covariances and direct central bank interventions in the foreign exchange markets," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1385-1411, June. [Downloadable!] (restricted)
  3. Hali J. Edison & Paul Cashin & Hong Liang, 2003. "Foreign Exchange Intervention and the Australian Dollar: Has it Mattered?," IMF Working Papers 03/99, International Monetary Fund. [Downloadable!]
    Other versions:
  4. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland. [Downloadable!]
  5. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements. [Downloadable!]
  6. Rogers, J. M. & Siklos, P. L., 2003. "Foreign exchange market intervention in two small open economies: the Canadian and Australian experience," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 393-416, June. [Downloadable!] (restricted)
    Other versions:
  7. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. Pierre L. Siklos & Diana N. Weymark, 2006. "Measuring the Impact of Intervention on Exchange Market Pressure," Working Papers 0604, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  2. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718. [Downloadable!]
    Other versions:
  3. Balazs Egert, 2006. "Central Bank Interventions, Communication and Interest Rate Policy in Emerging European Economies," IEHAS Discussion Papers 0615, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
    Other versions:
  4. Pontines, Victor & Siregar, Reza, 2009. "Intervention index and exchange rate regimes: the cases of selected East-Asian economies," MPRA Paper 17138, University Library of Munich, Germany. [Downloadable!]
  5. Balázs Égert, 2006. "Central Bank Interventions, Communication & Interest Rate Policy in Emerging European Economies," William Davidson Institute Working Papers Series wp846, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  6. Christopher J. Neely, 2007. "Central bank authorities’ beliefs about foreign exchange intervention," Working Papers 2006-045, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
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