Central Bank Intervention and Exchange Rate Expectations: Evidence from the Daily DM/US-Dollar Exchange Rate

Arbeitspapier

In this paper we propose a generalisation of the noise trader transmission mechanism to examine the impact of central bank intervention on exchange rates. Within a heterogeneous expectations exchange rate model intervention operations are supposed to provide support to either chartist or fundamentalist forecasts, which forces portfolio managers to adjust their foreign currency positions. The empirical examination of the hypothesis is done by applying a markov regime-switching approach to daily US-dollar/DEM forward rates and intervention data of the Deutsche Bundesbank and the Federal Reserve from 1979 to 1992. It is shown that the performance of simple chartist trading rules was strong whenever these central banks intervened on the foreign exchange market. A similar coincidence cannot be found within the more sophisticated fundamentalist approach.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2002,17

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; International Financial Markets ; Central Banks and Their Policies
• Subject: Wechselkurse ; Intervention ; Regime-Switching ; exchange rates ; intervention ; regime-switching ; Wechselkurspolitik ; Wirtschaftspolitische Wirkungsanalyse ; Wechselkurstheorie ; Erwartungstheorie ; Wertpapieranalyse ; Noise Trading ; Theorie ; Schätzung ; Wechselkurs ; Deutschland ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Reitz, Stefan
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/19574
• Last update: 10.03.2025, 11:43 AM CET