Download or read book The Market Microstructure of Central Bank Intervention written by Kathryn M. Dominguez and published by . This book was released on 1999 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the great unknowns in international finance is the process by which new information influences exchange rate behavior. This paper focuses on one important source of information to the foreign exchange markets, the intervention operations of the G-3 central banks. Previous studies using daily and weekly foreign exchange rate data suggest that central bank intervention operations can influence both the level and variance of exchange rates, but little is known about how exactly traders learn of these operations and whether intra-daily market conditions influence the effectiveness of central bank interventions. This paper uses high-frequency data to examine the relationship between the efficacy of intervention operations and the 'state of the market' at the moment that the operation is made public to traders. The results indicate that some traders know that a central bank is intervening at least one hour prior to the public release of the information in newswire reports. Also, the evidence suggests that the timing of intervention operations matter interventions that occur during heavy trading volume and that are closely timed to scheduled macro announcements are the most likely to have large effects. Finally, post-intervention mean reversion in both exchange rate returns and volatility indicate that dealer inventories are affected by market reactions to intervention news.
Download or read book The Market Microstructure of Central Bank Intervention written by Kathryn M.E. Dominguez and published by . This book was released on 2002 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the great unknowns in international finance is the process by which new information influences exchange rate behavior. Until recently, data constraints have limited our ability to examine this issue. The Olsen and Associates high-frequency spot market data greatly expand the range of testable hypotheses regarding the influence of information. This paper focuses on one important source of information to the foreign exchange markets, the intervention operations of the G-3 central banks. Previous studies using daily and weekly foreign exchange rate data suggest that central bank intervention operations can influence both the level and variance of exchange rates, but little is known about how exactly traders learn about these operations and whether intra-daily market conditions influence their effectiveness. Using high-frequency data, this paper will examine the relationship between the efficacy of intervention operations and the quot;state of the marketquot; at the moment that the operation is made public to traders.
Download or read book The Market Microstructure of Central Bank Inter Intervention written by Kathryn M. Dominguez and published by . This book was released on 1999 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Empirics of Foreign Exchange Intervention in Emerging Markets written by Roberto Pereira Guimarães and published by International Monetary Fund. This book was released on 2004-07-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the effects of intervention on the level and volatility of the exchange rate in Mexico and Turkey, two emerging countries that have floating exchange rate regimes. The paper finds mixed evidence on the effectiveness of intervention. In Mexico, foreign exchange sales have a small impact on the exchange rate level and raise short-term volatility, while in Turkey, intervention does not appear to affect the exchange rate level but reduces its shortterm volatility. In both cases, the findings are consistent with officially stated policy objectives, which aim to minimize the effect of intervention on the exchange rate, but cast doubt on claims that intervention is a useful tool for smoothing volatility. Although these findings cannot be generalized to other emerging markets, intervention's apparently limited effectiveness highlights the need for central banks to use their scarce foreign reserves selectively and parsimoniously.
Download or read book Informed Traders Intervention and Price Leadership written by Bettina M. Peiers and published by . This book was released on 1995 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Foreign Exchange Intervention Rules for Central Banks A Risk based Framework written by Romain Lafarguette and published by International Monetary Fund. This book was released on 2021-02-12 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.
Download or read book The Market Microstructure of Central Bank Investigation written by Kathryn Mary Dominguez and published by . This book was released on 1999 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Central Bank Emergency Support to Securities Markets written by Darryl King and published by International Monetary Fund. This book was released on 2017-07-10 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper considers the central bank mandate with respect to financial stability and identifies the links to the functioning of securities markets. It argues that while emergency support to securities markets is an important part of the crisis management response, a high bar should be set for its use. Importantly, it should be used only as part of a comprehensive policy package. The paper considers what types of securities markets may be important for financial stability, what market conditions could trigger emergency support measures, and how programs can be designed to restore market functioning while minimizing moral hazard.
Download or read book The Effectiveness of Central bank Intervention written by Hali J. Edison and published by . This book was released on 1993 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Microstructure of Government Securities Markets written by Mr.Peter Dattels and published by International Monetary Fund. This book was released on 1995-11 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper applies the “market microstructure” literature to the specific features of government securities markets and draws implications for the strategy to develop government securities markets. It argues for an active role of the authorities in fostering the development of efficient market structures.
Download or read book Identifying the Efficacy of Central Bank Interventions written by Jonathan Kearns and published by . This book was released on 2002 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: The endogeneity of exchange rates and intervention has long plagued studies of the effectiveness of central banks actions in foreign exchange markets. Researchers have either excluded contemporaneous intervention, so that their explanators are predetermined, or obtained a small, and typically incorrectly signed, coefficient on contemporaneous intervention. Failing to account for the endogeneity, when central banks lean against the wind and trade strategically, will likely result in a large downward bias to the coefficient on contemporaneous intervention -- explaining the negative coefficient frequently obtained. We use an alternative identification assumption, a change in Reserve Bank of Australia intervention policy, that allows us to estimate, using simulated GMM, a model that includes the contemporaneous impact of intervention. There are three main results. Our point estimates suggest that central bank intervention has a economically significant contemporaneous effect. A $US100m purchase of the domestic currency will appreciate the exchange rate by 1.35 to 1.81 per cent. This estimate is remarkably similar to the calibration conducted by Dominguez and Frankel (1993), who themselves noted their estimate was larger than previous empirical findings. Secondly, the vast majority of the effect of an intervention on the exchange rate is found to occur during the day in which it is conducted, with only a smaller impact on subsequent days. Finally, we confirm findings that Australian central bank intervention policy can be characterized by leaning aginst the wind.
Download or read book When Do Central Bank Interventions Influence Intra daily and Longer term Exchange Rate Movements written by Kathryn M. Dominguez and published by . This book was released on 2003 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines dollar interventions by the G3 governments since 1989, and the reasons that trader reactions to these interventions might differ over time and across central banks. Market microstructure theory provides a framework for understanding the process by which sterilized central bank interventions are observed and interpreted by traders, and how this process, in turn, might influence exchange rates. Using intra-daily and daily exchange rate and intervention data, the paper analyzes the influence of interventions on exchange rate volatility, finding evidence of both within day and daily impact effects, but little evidence that interventions increase longer-term volatility.
Download or read book The Microstructure Approach to Exchange Rates written by Richard K. Lyons and published by MIT Press (MA). This book was released on 2001 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: Explaining the puzzling behavior of exchange rates using models from microstructure finance and data from electronic trading.
Download or read book A Transaction Level Study of the Effects of Central Bank Intervention on Exchange Rates written by Richard Payne and published by . This book was released on 2001 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Transparency in Central Bank Operations in the Foreign Exchange Market written by Mr.Charles Enoch and published by International Monetary Fund. This book was released on 1998-03-01 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Transparency in the economic sphere involves making public sector action visible and understandable to the private sector. Transparency in central bank operations can be seen a complement to the greater transparency being established in policy formulation. Among the most important areas in this regard and the central bank’s operations in the foreign exchange market. This paper looks at the respective roles of overt and covert foreign exchange market operations, and considers that each may be appropriate under particular conditions. Reconciling covert operations with transparency requires rules for full disclosure with as short a lag as possible.
Download or read book Exchange Rate Dynamics Intervention and Regime Shifts in China written by Wenting Zhang and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis applies the market microstructure approach to investigate exchange rate dynamics, intervention and regime shifts in China's exchange rate system. This research first examines exchange rate determination and dynamics from a microstructural perspective. An index of order flow is constructed in the Chinese context to reflect excess demand pressure. A VAR model is then estimated to explore to what extent order flow may explain long-term determination and short-term fluctuations of the renminbi exchange rate. Focusing on the cointegrating relationship between cumulative order flow and the exchange rate of the RMB against the US dollar, this research find that in the new Chinese exchange rate regime in place since 2005, order flow is able to explain a significant part of fluctuations in the RMB-dollar exchange rate. China is internationally noted for its intervention in the foreign exchange market. Based on high-frequency data this thesis adopt a multi-dimensional approach to explore how interventions are conducted in China, what the consequences are, and to what extent they are effective. This thesis identify evidence of China's extensive intervention and find that the authority is more likely to intervene to curb devaluation. Decomposition analysis shows that the direct impact of intervention on the exchange rate is more important than the impact via order flow. Intervention via the central bank's involvement in trading is effective in influencing both the exchange rate and order flow, but tends to increase volatility. Intervention by the central bank's varying the central parity condition plays some role in 'leaning against the wind', but cannot reverse the trend. China announced the reform of its exchange rate system in 2005. The reform was disrupted by the breakout of the global financial crisis around 2008, but was reiterated in 2010. The thesis analyses the behaviour of China's exchange rate policy since then. This research detect 21st June 2010 as the date of regime shift, since when the RMB has been allowed greater room for flexibility, and consequently exchange rate volatility has increased. This research unearths evidence confirming that the renminbi no longer pegs only to the dollar. During the crisis period, deviations from the central parity rate (CPR) increase the possibility of government intervention, and the intervention correlates with bid-ask exchange rate spread. The Chinese monetary authority is found to act to keep the exchange rate stable. In the post-crisis period, the correlation becomes time-varying and the government prefers the RMB exchange rate to gradually appreciate. This research finds evidence that appreciation of the RMB exchange rate is order flow driven during the post-crisis period. There is a significant negative currency exposure during the financial crisis, caused by changes in the RMB exchange rate, indicating that the Chinese stock market exhibits a negative reaction in the period. However, no significant impact is found in the post- crisis period. In order to modify the exchange rate exposure to fluctuations of the US dollar, the Chinese government seems to have adopted the relatively more efficient exchange rate regime to handle the effects of the global financial crisis.
Download or read book DIVINE INTERVENTION SPECULATORS AND CENTRAL BANKS IN THE FOREIGN EXCHANGE MARKET written by ANUSHA CHARI and published by . This book was released on 2002 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt:
