The Effectiveness of FX Interventions: A Meta-Analysis (original) (raw)

An analysis of recent studies of the effect of foreign exchange intervention

2005

Two recent strands of research have contributed to our understanding of the effects of foreign exchange intervention: i) the use of high-frequency data and ii) the use of event studies to evaluate the effects of intervention. This article surveys recent empirical studies of the effect of foreign exchange intervention and analyzes the implicit assumptions and limitations of such work. After explicitly detailing such drawbacks, the paper suggests ways to better investigate the effects of intervention.

On the Effectiveness of Exchange Rate Interventions in Emerging Markets

OECD Development Centre Working Papers, 2014

We analyze the effectiveness of exchange rate interventions for a panel of 18 emerging market economies during the period 2003-2011. Using an error-correction model approach we find that on average intervention is effective in moving the real exchange rate in the desired direction, controlling for deviations from the equilibrium and short-term changes in fundamentals and global financial variables. Our results are robust to different samples and estimation methods. We find little evidence of asymmetries in the effect of sales and purchases, but some evidence of more effective interventions for large deviations from the equilibrium. We also explore differences across countries according to the possible transmission channels and nature of some global shocks.

The Effectiveness of Foreign-Exchange Intervention: Recent Experience

1988

Since the September 1985 Plaza Hotel announcement by the Group of Five industrial countries, a substantial realignment of exchange rates has been achieved. At the same time, foreign exchange market intervention, much of it concerted and much of it sterilized, has been undertaken on a scale not seen since the early 1970s This paper takes a fresh look at the effectiveness of sterilized intervention in the light of recent experience. The paper concludes that sterilized intervention, in itself, has played an unimportant role in promoting exchange-rate realignment. Instead, clear shifts in patterns of monetary and fiscal policy appear to have been the main medium-term policy factors determining currency values. Over certain shorter time periods, intervention has influenced exchange markets through a signalling channel; but this signalling effect has been operative only as a result of authorities' frequent readiness to adjust monetary policies promptly to counteract unwelcome exchange-market pressures. The paper makes some progress in formalizing reasons why intervention might enhance the credibility of messages that governments could convey as well through simple verbal announcements

FX Intervention: Goals, Strategies and Tactics

ERN: Central Banks - Policies (Topic), 2019

Foreign exchange intervention is an important tool for central banks in many emerging market economies (EMEs). Drawing on a recent survey of 21 EME central banks as well as inputs from their contributions published in this volume, this paper summarises the main issues with regard to FX intervention. It focusses on the goals, channels, effectiveness and the different methods and tactics used by central banks. It leverages data from similar surveys conducted in the past to illustrate how central banks’ views and conduct have evolved over the years along each of these dimensions. Full Publication: Reserve Management and FX Intervention

Foreign Exchange Interventions as an Unconventional Monetary Policy Instrument — An Empirical Review

Journal of Economics, Business and Management, 2016

The crisis showed the assumption that keeping inflation under control is a sufficient condition to ensure a stable economy is not valid anymore. As economies are more and more interconnected and the flow of capital is free, foreign exchange interventions become a tool used by many economies in order to protect against unfavourable fluctuations in the exchange rate. Empirical research has shown that it cannot be provided a recipe that guarantees the success of such operations and that a successful stance cannot be maintained for a long period of time, because the necessary adjustments will be inevitable. Also, maintaining foreign exchange reserves and intervening on the market involves costs. Overall, foreign exchange interventions remain a research topic of interest, because the exchange rate fluctuations affect the balance sheets of banks, companies and, increasingly, even households.

New evidence on the effectiveness of foreign exchange market intervention

European Economic Review, 1995

This paper compares foreign exchange market intervention in case there is no uncertainty about the extent of an imperfectly sustainable target zone and where there is uncertainty. A well-known example of the first case was the European Monetary System between 1979 and 1992. An example of the latter is the dirty floating of the dollar against the Dmark and yen after the so-called Louvre Accord in 1987. The analysis shows that the instantaneous effectiveness of intervention tends to be larger the more implicit the band policy is. Our empirical results which use Belgian and US intervention data support this claim.

Measuring the Effect of Foreign Exchange Intervention Policies on Exchange Rates

2019

Central bank intervention in foreign exchange markets is a common tool to influence exchange rates. Although central bankers are convinced of their policy’s effectiveness, econometric estimates of precise effects differ across studies. The difficulties with estimations mostly result from a lack of adequate data. This article highlights different econometric approaches that aim to mitigate estimation problems. Techniques comprise control and matching approaches, event studies, as well as the use and imputation of high-frequency data. Their comparison reveals a trade-off between clear identification of the effect and establishing its validity over a sustained period.

The Effectiveness of Foreign Exchange Market Intervention: A Review of Post-2001 Studies on Japan

Journal of Reviews on Global Economics, 2014

Post-2001 studies on Japanese official intervention, though divergent in results, generally support the effectiveness of daily intervention in influencing yen-dollar exchange rate returns. Studies are less conclusive about the impact on volatility. Any impact of intervention appears to be short-lived and a reversal of the initial impact to occur on subsequent days, suggesting market microstructure as the primary channel: intervention acts like any other information and works through order flows. The overriding message of the literature is that the impact of intervention depends on the conditions under which it takes place. Each intervention is thus a unique event. This explains why econometric tests of the average impact of intervention yield mixed results.