Working Paper: CEPR ID: DP12510
Authors: Marcel Fratzscher; Oliver Gloede; Lukas Menkhoff; Lucio Sarno; Tobias Sthr
Abstract: This paper examines foreign exchange intervention based on novel daily data covering 33 countries from 1995 to 2011. We find that intervention is widely used and an effective policy tool, with a success rate in excess of 80 percent under some criteria. The policy works well in terms of smoothing the path of exchange rates, and in stabilizing the exchange rate in countries with narrow band regimes. Moving the level of the exchange rate in flexible regimes requires that some conditions are met, including the use of large volumes and that intervention is made public and supported via communication.
Keywords: foreign exchange intervention; exchange rate regimes; effectiveness measures; communication
JEL Codes: F31; F33; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| large interventions (C55) | successful interventions (I24) |
| effective communication (L96) | successful interventions (I24) |
| high volatility (C58) | success in smoothing exchange rate movements (F31) |
| narrow band regimes (F55) | higher success rates for stabilization objectives (E63) |
| oral interventions during turbulent times (F51) | increases probability of success (C52) |
| foreign exchange interventions (F31) | success rate exceeding 80% (C52) |
| foreign exchange interventions (F31) | stabilize exchange rates (F31) |
| foreign exchange interventions (F31) | smooth exchange rate fluctuations (F31) |