Working Paper: CEPR ID: DP3085
Authors: Richard Payne; Paolo Vitale
Abstract: We study the effects of sterilized intervention operations executed on behalf of the Swiss National Bank (SNB) using tick-by-tick transaction data between 1985-95.We extend preliminary analysis conducted by Fischer and Zurlinden (1999) by matching these data with intra-day indicative exchange ate quotes and with news-wire reports of central banks ?activity. Via an event study analysis we find that intervention has important short-run effects on exchange ate returns and volatility. In particular, among various results, we find that intervention i) has a stronger impact when the SNB moves with-the-market and when its activity is concerted with that of other central banks, ii) is partially anticipated by the market and iii) temporarily reduces market liquidity.
Keywords: foreign exchange market; market microstructure; sterilized intervention
JEL Codes: F31; G14; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| signed intervention (Y20) | exchange rates (F31) |
| signed intervention (Y20) | market conditions (P42) |
| intervention size (C90) | exchange rates (F31) |
| anticipation of intervention effects (D84) | exchange rates (F31) |
| signed intervention (buying US dollars) (F31) | exchange rate appreciation (F31) |
| signed intervention (selling US dollars) (F33) | exchange rate depreciation (F31) |
| central bank intervention (E58) | market liquidity (G10) |
| anticipation of intervention (D84) | market uncertainty (D84) |
| central bank intervention (coordinated with other banks) (E58) | larger effects on exchange rates (F31) |
| interventions following current trend (B53) | more effective interventions (I24) |