The interdealer market and the central bank intervention

Paula C. Albuquerque ()

No 2005/09, Working Papers from Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.

Abstract: This paper studies the consequences of having either an interventionist or a non-interventionist central bank in the foreign exchange market, in a market microstructure framework. Although a simple one-period model is used, it allows the characterization of the effect of the central bank intervention on the behaviour of dealers. The model also identifies the conditions for the dealer that acts as the counterpart of the central bank to be better or worse than the other dealers. The price is expected to be more informative with an interventionist central bank.

Keywords: foreign exchange market; interdealer market; central bank intervention; information; market microstructure. (search for similar items in EconPapers)
JEL-codes: D4 D8 F3 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fin, nep-fmk, nep-ifn and nep-mon
Date: 2005
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Persistent link: http://EconPapers.repec.org/RePEc:ise:isegwp:wp92005

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