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When Do Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange Rate Movements?

  • Kathryn M.E. Dominguez

This paper examines dollar interventions by the G3 governments since 1989, and the reasons that trader reactions to these interventions might differ over time and across central banks. Market microstructure theory provides a framework for understanding the process by which sterilized central bank interventions are observed and interpreted by traders, and how this process, in turn, might influence exchange rates. Using intra-daily and daily exchange rate and intervention data, the paper analyzes the influence of interventions on exchange rate volatility, finding evidence of both within day and daily impact effects, but little evidence that interventions increase longer-term volatility.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9875.

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Date of creation: Jul 2003
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Publication status: published as Journal of International Money and Finance, 25, 2006, 1051-1071.
Handle: RePEc:nbr:nberwo:9875
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