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An Empirical Test for the Effectiveness of Central Bank Interventions in Foreign Exchange Markets: An Application to the Canadian and Swiss Central Banks

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  • ABBUY, Kwami Edem

Abstract

This paper investigates the effectiveness of foreign exchange intervention of central banks of Canada and Switzerland. We examine the effectiveness of Canada and Switzerland interventions policies on Canadian dollar against US dollar and Swiss franc against US dollar exchange rates volatility over the 1980-2014 period. A behavioral exchange rate equation is estimated with instrumental variables methodology. The main results indicate that interventions generally reduce exchange rates volatility. However, the Swiss National Bank seems to be more efficient by stabilizing the Swiss franc than the Bank of Canada, whose interventions, despite its effectiveness, remains weak.

Suggested Citation

  • ABBUY, Kwami Edem, 2018. "An Empirical Test for the Effectiveness of Central Bank Interventions in Foreign Exchange Markets: An Application to the Canadian and Swiss Central Banks," MPRA Paper 89647, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:89647
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    References listed on IDEAS

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    Cited by:

    1. Kugler, Peter, 2020. "The Short-Run Impact of SNB Sight Deposits on Exchange Rates: Results from Weekly Data 2015 - 2018," Working papers 2020/04, Faculty of Business and Economics - University of Basel.
    2. Borivoje D. Krušković, 2022. "Central Bank Intervention in the Inflation Targeting," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(1), pages 67-85.

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    Keywords

    Keywords: Volatility; Exchange rate; Official international reserves.;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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