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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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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
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  1. Fatum, Rasmus & Hutchison, Michael M., 2003. "Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan," Santa Cruz Center for International Economics, Working Paper Series qt2883n7z5, Center for International Economics, UC Santa Cruz.
  2. Owen F. Humpage, 2003. "Government intervention in the foreign exchange market," Working Paper 0315, Federal Reserve Bank of Cleveland.
  3. Rasmus Fatum & Michael M. Hutchison, . "Is Sterilized Foreign Exchange Intervention Effective After All? An Event Study Approach," EPRU Working Paper Series 99-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. 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.
  5. Chris D'Souza, 2002. "A Market Microstructure Analysis of Foreign Exchange Intervention in Canada," Working Papers 02-16, Bank of Canada.
  6. Beine, Michel & Laurent, Sebastien & Lecourt, Christelle, 2003. "Official central bank interventions and exchange rate volatility: Evidence from a regime-switching analysis," European Economic Review, Elsevier, vol. 47(5), pages 891-911, October.
  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. Hong Liang & Paul Cashin & Hali J. Edison, 2003. "Foreign Exchange Intervention and the Australian Dollar: Has it Mattered?," IMF Working Papers 03/99, International Monetary Fund.
  9. 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.
  10. Kathryn M.E. Dominguez, 2003. "When Do Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange Rate Movements?," NBER Working Papers 9875, National Bureau of Economic Research, Inc.
  11. Fatum, Rasmus, 2000. "On the effectiveness of sterilized foreign exchange intervention," Working Paper Series 0010, European Central Bank.
  12. Christopher J. Neely, 2000. "The practice of central bank intervention: looking under the hood," Working Papers 2000-028, Federal Reserve Bank of St. Louis.
  13. Priscilla Chiu, 2003. "Transparency versus constructive ambiguity in foreign exchange intervention," BIS Working Papers 144, Bank for International Settlements.
  14. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
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