The Dynamic Impact of FX Interventions on Financial Markets

Lukas Menkhoff, Malte Rieth () and Tobias Stohr
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Tobias Stohr: Kiel Institute for the World Economy and DIW Berlin
Authors registered in the RePEc Author Service: Tobias Heidland

The Review of Economics and Statistics, 2021, vol. 103, issue 5, 939-953

Abstract: Evidence on the effectiveness of foreign exchange (FX) interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Generally we find, for freely floating currencies, that FX intervention shocks significantly affect exchange rates and that this impact persists for months. The signaling channel dominates the portfolio channel. Moreover, interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.

Date: 2021
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https://doi.org/10.1162/rest_a_00928
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Related works:
Journal Article: The Dynamic Impact of FX Interventions on Financial Markets (2021)
Working Paper: The Dynamic Impact of FX Interventions on Financial Markets (2020)
Working Paper: The dynamic impact of FX interventions on financial markets (2020)
Working Paper: The Dynamic Impact of FX Interventions on Financial Markets (2019)
Working Paper: The dynamic impact of FX interventions on financial markets (2019)
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