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Measuring the Impact of Intervention on Exchange Market Pressure

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Author Info
Pierre L. Siklos () (Department of Economics and Viessmann Research Centre, Wilfrid Laurier University)
Diana N. Weymark () (Department of Economics, Vanderbilt University)

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Abstract

In this article, we introduce an index of ex ante exchange market pressure (EMP) that can be used as a benchmark against which to measure the effectiveness of sterilized intervention. Ex ante EMP is the change in the exchange rate that would have been observed if the policy authority had refrained from intervening and this policy decision had been correctly anticipated by rational agents. Ex post EMP measures the exchange market pressure under the policy actually implemented by the policy authority. We use a ratio of these two EMP measures to assess the effectiveness of sterilized intervention in Canada and Australia.

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File URL: http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu06-w04R.pdf
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File Function: Revised version, 2006
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0604.

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Date of creation: Mar 2006
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Handle: RePEc:van:wpaper:0604

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Related research
Keywords: Exchange market pressure exchange rate policy foreign exchange intervention Bank of Canada policy Reserve Bank of Australia policy

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange

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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. Lucio Sarno & Mark P. Taylor, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September. [Downloadable!] (restricted)
    Other versions:
  2. Graciela L. Kaminsky & Karen K. Lewis, 1996. "Does foreign exchange intervention signal future monetary policy?," Working Papers 96-7, Federal Reserve Bank of Philadelphia.
    Other versions:
  3. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-21, January.
  4. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada. [Downloadable!]
  5. Rasmus Fatum, 2005. "Daily Effects of Foreign Exchange Intervention: Evidence from Official Bank of Canada Data," EPRU Working Paper Series 05-07, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  6. Weymark, Diana N., 1995. "Estimating exchange market pressure and the degree of exchange market intervention for Canada," Journal of International Economics, Elsevier, vol. 39(3-4), pages 273-295, November. [Downloadable!] (restricted)
  7. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements. [Downloadable!]
  8. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December. [Downloadable!] (restricted)
  9. Pierre L. Siklos, 2003. "Assessing the Impact of Changes in Transparency and Accountability at the Bank of Canada," Canadian Public Policy, University of Toronto Press, vol. 29(3), pages 279-299, September. [Downloadable!] (restricted)
  10. Michael R. King & Rasmus Fatum, 2005. "The Effectiveness of Official Foreign Exchange Intervention in a Small Open Economy: The Case of the Canadian Dollar," Working Papers 05-21, Bank of Canada. [Downloadable!]
  11. Peiers, Bettina, 1997. " Informed Traders, Intervention, and Price Leadership: A Deeper View of the Microstructure of the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 52(4), pages 1589-1614, September. [Downloadable!] (restricted)
  12. Andrew Rennison, 2003. "Comparing Alternative Output-Gap Estimators: A Monte Carlo Approach," Working Papers 03-8, Bank of Canada. [Downloadable!]
  13. Bonser-Neal, Catherine & Tanner, Glenn, 1996. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 853-878, December. [Downloadable!] (restricted)
  14. Siklos, Pierre L, 2000. "Is the MCI a Useful Signal of Monetary Policy Conditions? An Empirical Investigation," International Finance, Blackwell Publishing, vol. 3(3), pages 413-37, November. [Downloadable!] (restricted)
  15. Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April. [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, 2007. "Is Sterilized Intervention Effective? New International Evidence," Working Papers 142007, Hong Kong Institute for Monetary Research. [Downloadable!]
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