Central bank intervention and foreign exchange markets

Dave Seerattan and Nicola Spagnolo

Applied Financial Economics, 2009, vol. 19, issue 17, 1417-1432

Abstract: In this article we examine the sensitivity of the foreign exchange market to central bank intervention. Using a time varying Markov switching model we separate periods of relatively stable market conditions from volatile periods and look at the dynamic of the causality effect under different market conditions. The analysis is conducted for three developing markets, namely Croatia, Iceland and Jamaica and one developed market, Australia, for comparative purposes. We show that direct intervention affects the probability of switching between states in the developed market but has little or no effect in the developing markets reviewed. We argue that this is due to specific intervention practices rather than market characteristics. Additionally, we find that intervention purchases and sales tend to have different effects. Monetary policy is also found to impact the probability of transitioning from one market state to another, sometimes detracting from the strength of the influence of direct intervention on the transition probabilities.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840902817789 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:19:y:2009:i:17:p:1417-1432

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/00036840902817789

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().