Real-Time Effects of Central Bank Interventions in the Euro Market
Publikation: Working paper › Forskning
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Real-Time Effects of Central Bank Interventions in the Euro Market. / Fatum, Rasmus; Pedersen, Jesper.
Economic Policy Research Unit. Department of Economics, University of Copenhagen, 2007.Publikation: Working paper › Forskning
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TY - UNPB
T1 - Real-Time Effects of Central Bank Interventions in the Euro Market
AU - Fatum, Rasmus
AU - Pedersen, Jesper
N1 - JEL Classification: D53, E58, F31, G15
PY - 2007
Y1 - 2007
N2 - This paper investigates the real-time effects of foreign exchange intervention using official intraday intervention data provided by the Danish central bank. Denmark is currently pursuing an active intervention policy under the provisions of the Exchange Rate Mechanism (ERM II) and intervenes on a discretionary basis when considered necessary. Prior participation in ERM II is a requirement for adoption of the Euro. Therefore, our study is of particular relevance for the new European Union member states that are either currently participating in ERM II or expected to do so at a later date as well as for Denmark. Our analysis employs the two-step weighted least squares estimation procedure of Andersen, Bollerslev, Diebold and Vega (2003) and an array of robustness tests. We find that intervention exerts a statistically and economically significant influence on exchange rate returns when the direction of intervention is consistent with fundamentals and intervention is carried out during a period of high exchange rate volatility. We also show that the exchange rate does not adjust instantaneously to the unannounced and discretionary interventions under study. We conclude that intervention can be an important short-term policy instrument for exchange rate management
AB - This paper investigates the real-time effects of foreign exchange intervention using official intraday intervention data provided by the Danish central bank. Denmark is currently pursuing an active intervention policy under the provisions of the Exchange Rate Mechanism (ERM II) and intervenes on a discretionary basis when considered necessary. Prior participation in ERM II is a requirement for adoption of the Euro. Therefore, our study is of particular relevance for the new European Union member states that are either currently participating in ERM II or expected to do so at a later date as well as for Denmark. Our analysis employs the two-step weighted least squares estimation procedure of Andersen, Bollerslev, Diebold and Vega (2003) and an array of robustness tests. We find that intervention exerts a statistically and economically significant influence on exchange rate returns when the direction of intervention is consistent with fundamentals and intervention is carried out during a period of high exchange rate volatility. We also show that the exchange rate does not adjust instantaneously to the unannounced and discretionary interventions under study. We conclude that intervention can be an important short-term policy instrument for exchange rate management
KW - Faculty of Social Sciences
KW - foreign exchange intervention
KW - intraday data
M3 - Working paper
BT - Real-Time Effects of Central Bank Interventions in the Euro Market
PB - Economic Policy Research Unit. Department of Economics, University of Copenhagen
ER -
ID: 491572