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Real-time effects of central bank intervention in the euro market

  • Fatum, Rasmus
  • Pedersen, Jesper

This paper investigates the real-time effects of sterilized foreign exchange intervention using official intraday intervention data provided by the Danish central bank. Our analysis employs a two-step weighted least squares estimation procedure. We control for macro surprises, address the issue of endogeneity, and carry out an array of robustness tests. Only when the direction of intervention is consistent with the monetary policy stance do we find that intervention exerts a significant influence on exchange rate returns.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 78 (2009)
Issue (Month): 1 (June)
Pages: 11-20

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Handle: RePEc:eee:inecon:v:78:y:2009:i:1:p:11-20
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  11. Burkhard, Lukas & Fischer, Andreas M., 2009. "Communicating policy options at the zero bound," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 742-754, September.
  12. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2007. "Roughing It Up: Including Jump Components in the Measurement, Modeling and Forecasting of Return Volatility," CREATES Research Papers 2007-18, Department of Economics and Business Economics, Aarhus University.
  13. Kathryn M. Dominguez, 1999. "The Market Microstructure of Central Bank Intervention," NBER Working Papers 7337, National Bureau of Economic Research, Inc.
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  16. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange?," Center for Financial Institutions Working Papers 02-23, Wharton School Center for Financial Institutions, University of Pennsylvania.
  17. Vitale, Paolo, 2006. "A Market Microstructure Analysis of Foreign Exchange Intervention," CEPR Discussion Papers 5468, C.E.P.R. Discussion Papers.
  18. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  19. Charles Goodhart & Takatoshi Ito & Richard Payne, 1996. "One Day in June 1993: A Study of the Working of the Reuters 2000-2 Electronic Foreign Exchange Trading System," NBER Chapters, in: The Microstructure of Foreign Exchange Markets, pages 107-182 National Bureau of Economic Research, Inc.
  20. 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.
  21. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2007. "Real-time price discovery in global stock, bond and foreign exchange markets," Journal of International Economics, Elsevier, vol. 73(2), pages 251-277, November.
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  23. Fischer, Andreas M., 2003. "Measurement error and the profitability of interventions: a closer look at SNB transactions data," Economics Letters, Elsevier, vol. 81(1), pages 137-142, October.
  24. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, vol. 15(2), pages 211-245, February.
  25. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Working Papers 2005-030, Federal Reserve Bank of St. Louis.
  26. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland.
  27. Eduard Hochreiter & Pierre Siklos, 2006. "Introductory Remarks for the "Contemporary Economic Policy" Special Section on "Monetary Policy Issues of New EU-Member and Candidate Countries"," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 473-474, October.
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