On the effectiveness of sterilized foreign exchange intervention
This paper addresses the question of whether sterilized central bank intervention systematically affects exchange rates. Furthermore, the paper analyzes whether a central bank can conduct its intervention operations in a specific manner, in order to increase the likelihood of achieving its objectives. The first question is addressed by applying the event study methodology of the finance literature to daily data on Bundesbank and Fed post-Plaza intervention. Using the non-parametric sign test and the matched sample test, evidence of effectiveness in terms of a systematic association between exchange rate levels and intervention is found. The second question is addressed by estimating binary choice models of the conditional probabilities of observing a successful intervention operation over observations when at least one of the two central banks were intervening. The results suggest that central banks can in fact improve the likelihood of success primarily through co-ordination and, also, if intervention occurs infrequently. JEL Classification: F31, F33, F42, G15
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- Graciela Kaminsky & Karen K. Lewis, 1993.
"Does Foreign Exchange Intervention Signal Future Monetary Policy?,"
NBER Working Papers
4298, National Bureau of Economic Research, Inc.
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- Graciela L. Kaminsky & Karen K. Lewis, 1996. "Does foreign exchange intervention signal future monetary policy?," Working Papers 96-7, Federal Reserve Bank of Philadelphia.
- Graciela L. Kaminsky & Karen K. Lewis, 1993. "Does foreign exchange intervention signal future monetary policy?," Finance and Economics Discussion Series 93-1, Board of Governors of the Federal Reserve System (U.S.).
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- Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
- Catherine Bonser-Neal & Glenn Tanner, 1995. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Research Working Paper 95-04, Federal Reserve Bank of Kansas City.
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