The interdealer market and the central bank intervention
This paper studies the consequences of having either an interventionist or a non-interventionist central bank in the foreign exchange market, in a market microstructure framework. Although a simple one-period model is used, it allows the characterization of the effect of the central bank intervention on the behaviour of dealers. The model also identifies the conditions for the dealer that acts as the counterpart of the central bank to be better or worse than the other dealers. The price is expected to be more informative with an interventionist central bank.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL|
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC
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- Chris D'Souza, 2002. "A Market Microstructure Analysis of Foreign Exchange Intervention in Canada," Staff Working Papers 02-16, Bank of Canada.
- Lyons, Richard K., 1997. "A simultaneous trade model of the foreign exchange hot potato," Journal of International Economics, Elsevier, vol. 42(3-4), pages 275-298, May.
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CEPR Discussion Papers
737, C.E.P.R. Discussion Papers.
- Bhattacharya, Utpal & Weller, Paul, 1997. "The advantage to hiding one's hand: Speculation and central bank intervention in the foreign exchange market," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 251-277, July.
- Jeanne, Olivier & Rose, Andrew K, 1999.
"Noise Trading and Exchange Rate Regimes,"
CEPR Discussion Papers
2142, C.E.P.R. Discussion Papers.
- Olivier Jeanne & Andrew K Rose, 1999. "Noise trading and exchange rate regimes," Reserve Bank of New Zealand Discussion Paper Series G99/2, Reserve Bank of New Zealand.
- Olivier Jeanne & Andrew K. Rose, 1999. "Noise Trading and Exchange Rate Regimes," NBER Working Papers 7104, National Bureau of Economic Research, Inc.
- Bossaerts, Peter & Hillion, Pierre, 1991. "Market Microstructure Effects of Government Intervention in the Foreign Exchange Market," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 513-41.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
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