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Dollar intervention and the deutschemark-dollar exchange rate: a daily time-series model

Listed author(s):
  • Owen F. Humpage

This paper develops a simultaneous time-series model to investigate the daily interactions between official exchange-market intervention and movements in the deutschemark-dollar exchange rate, from November 2, 1978, to October 31, 1979. the model is constructed using both morning-opening and afternoon-closing exchange-rate quotes, Using these two quotes, and making assumptions about the timing of intervention relative to the exchange-rate quotes, enables us to measure the causal relationships among contemporaneous variables, the results suggest that, over the period investigated, the Federal Reserve responded to exchange-rate movements in a manner consistent with a leaning-against-the-wind strategy, but that this intervention tended to accentuate slightly movements in the rate. This result seems to support claims that traders recognized intervention and traded against it.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 8404.

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Date of creation: 1984
Handle: RePEc:fip:fedcwp:8404
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