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Communication and exchange rate policy

Author Info

  • Fratzscher, Marcel

Abstract

Monetary authorities in the G3 economies have shifted in recent years towards communication as their primary policy tool to influence exchange rates. The paper assesses the effectiveness of communication, or oral interventions, by the G3 monetary authorities. It provides two key findings. First, G3 communication policies have constituted an effective policy tool in influencing exchange rates in the desired direction. And second, communication has been effective independently from the stance and direction of monetary policy and the occurrence of actual interventions. By contrast, the effectiveness of communication is strongly related to the degree of uncertainty and the positioning of participants in FX markets. Taken together, the results provide support for micro-based approaches to exchange rate modeling and are consistent with the argument that interventions affect exchange rates primarily through a coordination channel rather than a signaling channel.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 4 (December)
Pages: 1651-1672

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:4:p:1651-1672
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

Keywords: Communication Exchange rate Intervention Policy United States Euro area Japan;

Other versions of this item:

Find related papers by JEL classification:
  • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
  • 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

References listed on IDEAS
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  1. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October.
  2. Anderson, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," Working Papers 02-1, University of Pennsylvania, Wharton School, Weiss Center.
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  26. repec:rus:hseeco:21608 is not listed on IDEAS
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