IDEAS home Printed from https://ideas.repec.org/a/jed/journl/v32y2007i1p105-128.html
   My bibliography  Save this article

How To Intervene In Fx Market: Market Microstructure Approach

Author

Listed:
  • Wonchang Jang

    () (Inha University)

Abstract

This paper proposes a market microstructure model of FX intervention to analyze the relationship between central bank intervention and the characteristics of the foreign exchange market. The implication of our model is that the characteristic of the exchange rate movements around central bank intervention is determined by portfolio managers¡¯ trading intensity and their boundary weights on the fundamentalist¡¯s view, market-makers¡¯ price adjustment speed and their speculative trading intensity. When the portfolio managers¡¯ trading intensity is low (thin market), central bank must operate heavy interventions to move spot exchange rate toward a target level. As the portfolio managers¡¯ boundary weight (minimum or maximum) on the fundamentalist¡¯s view increases, the influence of intervention increases. When the market-makers¡¯ price adjustment speed is fast, central bank must operate small interventions. Overall, this paper suggests that central banks need to have superior information on the characteristics of the foreign exchange market at the time the intervention operations are performed.

Suggested Citation

  • Wonchang Jang, 2007. "How To Intervene In Fx Market: Market Microstructure Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(1), pages 105-128, June.
  • Handle: RePEc:jed:journl:v:32:y:2007:i:1:p:105-128
    as

    Download full text from publisher

    File URL: http://www.jed.or.kr/full-text/32-1/32-1-6.pdf
    Download Restriction: no

    More about this item

    Keywords

    Central Bank Intervention; Exchange Rates; Market Microstructure;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jed:journl:v:32:y:2007:i:1:p:105-128. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sung Y. Park). General contact details of provider: http://edirc.repec.org/data/eccaukr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.