Market Responses To Coordinated Central Bank Intervention

Kathryn Dominguez

No 3192, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The scale of unilateral and coordinated intervention in the foreign exchange market by the G-5 countries has become considerably larger over the last few years, following a period in which official U.S. policy was opposed to intervention. This paper examines market responses to official sterilized central bank intervention policy over the period 1985 through 1987. The efficacy of sterilized intervention is hypothesized to depend on the market's belief that central banks both have "inside" information about future monetary policy and the incentive to reveal that information truthfully through intervention signals. Central banks may agree to coordinate their intervention operations in order to influence the market's perception of the relative importance and credibility of own signals. Market responses to intervention over the period 1985 through 1987 are examined econometrically using heretofore unavailable daily data on G-3 unilateral and coordinated intervention operations. The empirical evidence indicates that: (1) even though daily intervention data are not published, market participants were generally able to comtemporaneously observe the source and magnitude of central bank intervention operations, (2) unilateral intervention significantly influenced market expectations in some periods, and (3) coordinated intervention had a significantly different and longer-term influence on market expectations than did unilateral intervention over the three year period examined.

Date: 1989-12
Note: ITI IFM
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Carnegie-Rochester Conference Series on Public Policy, Vol. 32, pp. 121-163 , (Spring 1990).

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Related works:
Journal Article: Market responses to coordinated central bank intervention (1990)
Working Paper: MARKET RESPONSES TO COORDINATED CENTRAL BANK INTERVENTION (1989)
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