The impact of FX Central Bank Intervention in a Noise Trading Framework

Michel Beine, Paul De Grauwe and Marianna Grimaldi ()
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Marianna Grimaldi: CREA, University of Luxembourg

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: In this paper, we analyze the e¤ectiveness of the direct central bank interventions using a new effectiveness criterion. To this aim, we investigate the e¤ects of central bank interventions (CBI) in a noise trading model with chartists and fundamentalists. We first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a fundamental value. Then, we investigate the role of central bank interventions for explaining the switching properties between the two types of agents. We find evidence that in the medium run, interventions increase the proportion of fundamentalists and therefore exert some stabilizing influence on the exchange rate.

JEL-codes: C10 F31 F41 (search for similar items in EconPapers)
Date: 2008
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http://wwwfr.uni.lu/content/download/16907/214271/ ... ding%20Framework.pdf (application/pdf)

Related works:
Chapter: The Impact of FX Central Bank Intervention in a Noise Trading Framework (2014)
Journal Article: The impact of FX central bank intervention in a noise trading framework (2009)
Working Paper: The Impact of FX Central Bank Intervention in a Noise Trading Framework (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:08-15

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