A market microstructure analysis of foreign exchange intervention

Arbeitspapier

We formulate a market microstructure model of exchange determination we employ to investigate the impact of foreign exchange intervention on exchange rates and on foreign exchange (FX) market conditions. With our formulation we show i) how foreign exchange intervention influences exchange rates via both a portfolio-balance and a signalling channel and ii) derive a series of testable implications which are coherent with a large body of empirical research. Our investigation also proposes some normative recommendations, as we show i) that in extreme circumstances large scale foreign exchange intervention can have destabilizing effects for the functioning of FX markets and ii) that the route chosen for the implementation of official intervention has important implications for its impact on exchange rates and on market conditions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 629

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Information and Market Efficiency; Event Studies; Insider Trading ; International Financial Markets
• Subject: Exchange Rate Dynamics ; Foreign Exchange Micro Structure ; Official Intervention ; order flow ; Wechselkurs ; Devisenmarkt ; Wechselkurspolitik ; Zentralbank

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Vitale, Paolo
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/153063
• Last update: 10.03.2025, 11:43 AM CET