Working Paper: CEPR ID: DP5729
Authors: Paolo Vitale
Abstract: We offer a critical review of recent developments in the study of foreign exchange intervention. In particular, we discuss some unresolved issues, such as the secrecy puzzle, the relevance of the signalling and portfolio-balance effect hypotheses, the identification of the impact of foreign exchange intervention on currency values. We suggest that: i) the unresolved nature of these issues is partly due to the absence of a market microstructure perspective in most of the existing analysis of foreign exchange intervention; and ii) that recent promising advances in this strand of research have not fully exploited the potential of such perspective.
Keywords: Exchange rate dynamics; Foreign exchange microstructure; Official intervention
JEL Codes: D82; G14; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FX intervention (F31) | currency levels (F31) |
| FX intervention (F31) | exchange rate volatility (F31) |
| Coordinated FX interventions (F33) | currency values (F31) |
| Reported FX interventions (F31) | market conditions (P42) |
| Secret FX interventions (F31) | market conditions (P42) |
| Informed trading (G14) | intervention success (I24) |