Arbeitspapier

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

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.

Language
Englisch

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

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

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

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Reitz, Stefan
  • Taylor, Mark P.
  • Deutsche Bundesbank

Time of origin

  • 2006

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