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Measuring the Impact of Intervention on Exchange Market Pressure

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  • Pierre L. Siklos

    ()
    (Department of Economics and Viessmann Research Centre, Wilfrid Laurier University)

  • Diana N. Weymark

    ()
    (Department of Economics, Vanderbilt University)

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.accessecon.com/pubs/VUECON/vu06-w04R.pdf
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics 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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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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

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References

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  1. Fatum, Rasmus, 2008. "Daily effects of foreign exchange intervention: Evidence from official Bank of Canada data," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 438-454, April.
  2. 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.
  3. Scott Hendry & Charleen Adam, 2001. "The M1 Vector-Error-Correction Model: some Extensions and Applications," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 145-175, July-Dece.
  4. 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.
  5. Graciela L. Kaminsky & Karen K. Lewis, 1996. "Does foreign exchange intervention signal future monetary policy?," Working Papers 96-7, Federal Reserve Bank of Philadelphia.
  6. 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.
  7. 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.
  8. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements.
  9. Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
  10. Siklos, Pierre L, 2000. "Is the MCI a Useful Signal of Monetary Policy Conditions? An Empirical Investigation," International Finance, Wiley Blackwell, vol. 3(3), pages 413-37, November.
  11. Bank for International Settlements, 2005. "Foreign exchange market intervention in emerging markets: motives, techniques and implications," BIS Papers, Bank for International Settlements, number 24, 6.
  12. Andrew Rennison, 2003. "Comparing Alternative Output-Gap Estimators: A Monte Carlo Approach," Working Papers 03-8, Bank of Canada.
  13. Bell,Stephen, 2004. "Australia's Money Mandarins," Cambridge Books, Cambridge University Press, number 9780521839907, October.
  14. Siklos,Pierre L., 2002. "The Changing Face of Central Banking," Cambridge Books, Cambridge University Press, number 9780521780254, October.
  15. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada.
  16. Sarno, Lucio & Taylor, Mark P, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?," CEPR Discussion Papers 2690, C.E.P.R. Discussion Papers.
  17. 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.
  18. 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.
  19. 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.
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Cited by:
  1. Pierre L. Siklos & Diana N. Weymark, 2007. "Is Sterilized Intervention Effective? New International Evidence," Working Papers 142007, Hong Kong Institute for Monetary Research.

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