A Market Microstructure Analysis of Foreign Exchange Intervention in Canada
Staff Working Papers from Bank of Canada
Keywords: Exchange rates; Financial institutions; Financial markets (search for similar items in EconPapers)
JEL-codes: F31 G14 G21 (search for similar items in EconPapers)
Pages: 74 pages Abstract: This paper clarifies the role and the impact of foreign exchange dealers in the relationship between foreign exchange intervention and nominal exchange rates using a unique dataset that disaggregates trades by dealer and by type of trade. The paper tests a number of market microstructure hypotheses. Results suggest that central bank orders and other customer orders are treated similarly by dealers who are engaged in short-run speculative and risk-sharing-motivated interdealer trading. While private payoff-relevant information is contained in trades, speculative interdealer trading is based only on transitory non-payoff-relevant information. A central bank considering intervention must consider both the signal it wishes to convey to the market and the subsequent trading strategies utilized by dealers.
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:02-16
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