Working Paper: NBER ID: w12953
Authors: Kathryn Me Dominguez; Freyan Panthaki
Abstract: Intervention operations are used by governments to manage their exchange rates but officials rarely confirm their presence in the market, leading inevitably to erroneous reports in the financial press. There are also reports of what we term, unrequited interventions, interventions that the market expects but do not materialize. In this paper we examine the effects of various types of intervention news on intra-day exchange rate behavior. We find that unrequited interventions have a statistically significant influence on returns, volatility and order flow, suggesting that the expectation of intervention, even when governments do not intervene, can affect currency values.
Keywords: No keywords provided
JEL Codes: F3; F31; G14; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Intervention news (F51) | Exchange rates (F31) |
| Unrequited interventions (F35) | Exchange rates (F31) |
| Intervention news (F51) | Order flow (C69) |
| Intervention news influences Exchange rates through an information-signaling channel (F31) | Exchange rates (F31) |
| Actual interventions (I12) | Dollar depreciation relative to yen (F31) |
| Intervention news (F51) | Variability in exchange rate movements (F31) |