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An Empirical Test for the Effectiveness of Central Bank Interventions in Foreign Exchange Markets: An Application to the Canadian and Swiss Central Banks

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  • Kwami Edem ABBUY

    (Department of Economics, Laval University, Québec, Canada)

Abstract

This paper investigates the effectiveness of foreign exchange intervention of central banks of Canada and Switzerland. We examine the effectiveness of Canada and Switzerland interventions policies on Canadian dollaragainst US dollar and Swiss franc against US dollar exchange rates volatility over the 1980-2014 period. A behavioral exchange rate equation is estimated with instrumental variables methodology. The main results indicate that interventions generally reduce exchange rates volatility. However, the Swiss National Bank seems to be more efficient by stabilizing the Swiss franc than the Bank of Canada, whose interventions, despite its effectiveness, remains weak.

Suggested Citation

  • Kwami Edem ABBUY, 2018. "An Empirical Test for the Effectiveness of Central Bank Interventions in Foreign Exchange Markets: An Application to the Canadian and Swiss Central Banks," Journal of Economics and Political Economy, EconSciences Journals, vol. 5(4), pages 450-458, December.
    • Handle: RePEc:cvv:journ1:v:5:y:2018:i:4:p:450-458
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    References listed on IDEAS

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    1. Morana, Claudio & Beltratti, Andrea, 2000. "Central bank interventions and exchange rates: an analysis with high frequency data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 349-362, December.
    2. 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.
    3. Egert, Balazs & Komarek, Lubos, 2006. "Foreign exchange interventions and interest rate policy in the Czech Republic: Hand in glove?," Economic Systems, Elsevier, vol. 30(2), pages 121-140, June.
    4. Aguilar, Javiera & Nydahl, Stefan, 2000. "Central bank intervention and exchange rates: the case of Sweden," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 303-322, December.
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    Keywords

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    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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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