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The Market Microstructure of Central Bank Intervention

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Author Info
Dominguez
K.

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Abstract

One of the great unknowns in international finance is the process by which new information influences exchange rate behavior. Until recently, data constraints have limited our ability to examine this issue. The Olsen and Associates high-frequency spot market data greatly expand the range of testable hypotheses regarding the influence of information. This paper focuses on one important source of information to the foreign exchange markets, the intervention operations of the G-3 central banks. Previous studies using daily and weekly foreign exchange rate data suggest that central bank intervention operations can influence both the level and variance of exchange rates, but little is known about how exactly traders learn about these operations and whether intra-daily market conditions influence their effectiveness. Using high-frequency data, this paper will examine the relationship between the efficacy of intervention operations and the "state of the market" at the moment that the operation is made public to traders.

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Publisher Info
Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 412.

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Length: 56 pages
Date of creation: 1997
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Handle: RePEc:mie:wpaper:412

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Related research
Keywords: EXCHANGE RATE ; INFORMATION ; FINANCIAL MARKET;

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F31 - International Economics - - International Finance - - - Foreign Exchange

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    Other versions:
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    Other versions:
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    Other versions:
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    Other versions:
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    Other versions:
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