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When do central banks prefer to intervene secretly?

Montserrat Ferré and Carolina Manzano

International Journal of Finance & Economics, 2009, vol. 14, issue 4, 378-393

Abstract: Central banks often intervene secretly in the foreign exchange market. This secrecy seems to be at odds with the signalling channel. In this article we will analyse when a central bank intervening in the foreign exchange rate market purely through the signalling channel would prefer to act secretly or publicly. By using a microstructure model, we will show that the consistency of the intervention with fundamentals, the volume of noise trading, the weight given to the effectiveness of intervention and the degree of superior information held by the central bank will influence the decision to intervene secretly or publicly. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2009
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International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

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