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Daily Effects of Foreign Exchange Intervention: Evidence from Official Bank of Canada Data

Rasmus Fatum

No 05-07, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: This paper analyzes the effects of official, daily Bank of Canada intervention in the CAD/USD exchange rate market over the January 1995 to September 1998 period. Using an event study methodology and different criteria for effectiveness, movements in the CAD/USD exchange rate over the 1 through 10 days surrounding intervention events are investigated. It is shown that Bank of Canada intervention was systematically associated with both a change in the direction and a smoothing of the CAD/USD exchange rate. Bank of Canada intervention did not, however, succeed in reducing the volatility of the CAD/USD exchange rate. Additionally, the paper introduces the issue of currency co-movements to the intervention literature. It is shown that the effects of intervention are weakened when adjusting for general currency co-movements against the USD, suggesting that currency co-movements should be taken into account when addressing the effects of central bank intervention aimed at managing a minor currency vis-à-vis a major currency.

Keywords: foreign exchange intervention; event studies; currency co-movement (search for similar items in EconPapers)
JEL-codes: E58 F31 G14 G15 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2005-06
New Economics Papers: this item is included in nep-fmk, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Journal Article: Daily effects of foreign exchange intervention: Evidence from official Bank of Canada data (2008) Downloads
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