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The Accuracy of Reports of Foreign Exchange Intervention

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  • Michael W. Klein

Abstract

Daily foreign exchange operations by the Federal Reserve are not revealed to the public contemporaneously or, up until recently, even years after the fact. With the recent release of daily intervention data it is now possible to gauge the accuracy of the market's perceptions of the Fed's foreign exchange intervention. In this paper we look at both qualitative and quantitative evidence on the accuracy of press reports of foreign exchange intervention by the Federal Reserve between the beginning of January 1985 and the end of December 1989. The evidence shows that the likelihood of intervention being reported given that it actually occurred was 72 percent and that the likelihood of intervention actually occurring given that it was reported was 88 percent. Interventions which were reported by the newspaper were larger on average than those which were not reported and this difference is statistically significant. Multinomial logit analysis also demonstrates that the likelihood of intervention being reported increased with the size of the intervention.

Suggested Citation

  • Michael W. Klein, 1992. "The Accuracy of Reports of Foreign Exchange Intervention," NBER Working Papers 4165, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4165
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    1. Owen F. Humpage, 1991. "Central-bank intervention: recent literature, continuing controversy," Economic Review, Federal Reserve Bank of Cleveland, vol. 27(Q II), pages 12-26.
    2. Kathryn Dominguez & Jeffrey A. Frankel, 1991. "Does foreign exchange intervention matter? disentangling the portfolio and expectations effects for the mark," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    3. Klein, Michael W. & Lewis, Karen K., 1993. "Learning about intervention target zones," Journal of International Economics, Elsevier, vol. 35(3-4), pages 275-295, November.
    4. Hali J. Edison, 1990. "Foreign currency operations: an annotated bibliography," International Finance Discussion Papers 380, Board of Governors of the Federal Reserve System (U.S.).
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