The Dynamic Impact of FX Interventions on Financial Markets

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

No 205, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Evidence on the effectiveness of 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. Applying this approach to the most important, freely floating currencies, we find that FX intervention shocks significantly affect exchange rates and that this impact persists for months. We show for Japan and the US that 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.

Keywords: foreign exchange intervention; structural VAR; exchange rates; interest rates; stock prices (search for similar items in EconPapers)
JEL-codes: E58 F31 F33 (search for similar items in EconPapers)
Date: 2019-12-04
New Economics Papers: this item is included in nep-cwa, nep-ifn, nep-mac, nep-mon and nep-opm
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Related works:
Journal Article: The Dynamic Impact of FX Interventions on Financial Markets (2021)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:205

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