The coordination channel of foreign exchange intervention: a nonlinear microstructural analysis

Arbeitspapier

The coordination channel has been proposed as a means by which foreign exchange market intervention may be effective, in addition to the traditional portfolio balance and signaling channels. If strong and persistent misalignments of the exchange rate are caused by non-fundamental influences, such that a return to equilibrium is hampered by a coordination failure among fundamentals-based traders, then central bank intervention may act as a coordinating signal, encouraging stabilizing speculators to re-enter the market at the same time. We develop this idea in the framework of a simple microstructural model of exchange rate movements, which we then estimate using daily data on the dollar-mark exchange rate and on Federal Reserve and Bundesbank intervention operations. The results are supportive of the existence of a coordination channel of intervention effectiveness.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2006,08

Classification and Topics

• Classification: Wirtschaft ; Econometric and Statistical Methods and Methodology: General ; Open Economy Macroeconomics ; Foreign Exchange
• Subject: foreign exchange intervention ; coordination channel ; market microstructure ; nonlinear mean reversion ; Wechselkurspolitik ; Internationale wirtschaftspolitische Koordination ; Devisenspekulation ; Devisenmarkt ; Mikrostrukturanalyse ; Schätzung ; Theorie ; Deutschland ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Reitz, Stefan ; Taylor, Mark P.
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/19636
• Last update: 10.03.2025, 11:43 AM CET