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Daily effects of foreign exchange intervention: Evidence from official Bank of Canada data

  • Fatum, Rasmus

This paper analyzes the effects of official, daily Bank of Canada intervention in the CAD/USD exchange rate over the 1995-1998 period. Using an event study methodology and different criteria for effectiveness, some evidence that intervention was systematically associated with both a change in the direction and a smoothing of the exchange rate is presented. The results of the analysis, however, do not suggest that Bank of Canada intervention succeeded in reducing the volatility of the CAD/USD exchange rate. Furthermore, the paper shows that the effects of intervention are weakened when adjusting for general currency co-movements against the USD.

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File URL: http://www.sciencedirect.com/science/article/B6V9S-4RSBXRJ-3/1/1321b1036a7a772517dc05f0cb6718ae
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 3 (April)
Pages: 438-454

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:3:p:438-454
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. Fatum, Rasmus & Hutchison, Michael M., 2003. "Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan," Santa Cruz Department of Economics, Working Paper Series qt3rg5p5j2, Department of Economics, UC Santa Cruz.
  2. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
  3. Rasmus Fatum & Michael M. Hutchison, 2003. "Is sterilised foreign exchange intervention effective after all? an event study approach," Economic Journal, Royal Economic Society, vol. 113(487), pages 390-411, 04.
  4. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-10.
  5. Dominguez, Kathryn M.E., 2006. "When do central bank interventions influence intra-daily and longer-term exchange rate movements?," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1051-1071, November.
  6. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements.
  7. Michel Beine, 2004. "Conditional covariance and direct Central Bank intervention in the foreign exchange markets," ULB Institutional Repository 2013/10431, ULB -- Universite Libre de Bruxelles.
  8. Hali Edison & Paul Cashin & Hong Liang, 2006. "Foreign exchange intervention and the Australian dollar: has it mattered?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 155-171.
  9. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  10. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland.
  11. Michel Beine & Sébastien Laurent & Christelle Lecourt, 2003. "Official central bank interventions and exchange rate volatility: evidence from a regime-switching analysis," ULB Institutional Repository 2013/10437, ULB -- Universite Libre de Bruxelles.
  12. Chris D'Souza, 2002. "A Market Microstructure Analysis of Foreign Exchange Intervention in Canada," Working Papers 02-16, Bank of Canada.
  13. Fatum, Rasmus, 2000. "On the effectiveness of sterilized foreign exchange intervention," Working Paper Series 0010, European Central Bank.
  14. 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.
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