Daily Effects of Foreign Exchange Intervention: Evidence from Official Bank of Canada Data

UC Santa Cruz International Economics Working Paper No. 05-12

29 Pages Posted: 12 Jul 2005

See all articles by Rasmus Fatum

Rasmus Fatum

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: June 2005

Abstract

This paper analyzes the effects of official, daily Bank of Canada intervention in the CAD/USD exchange rate market over the January 1995 to September 1998 period. Using an event study methodology and different criteria for effectiveness, movements in the CAD/USD exchange rate over the 1 through 10 days surrounding intervention events are investigated. It is shown that Bank of Canada intervention was systematically associated with both a change in the direction and a smoothing of the CAD/USD exchange rate. Bank of Canada intervention did not, however, succeed in reducing the volatility of the CAD/USD exchange rate. Additionally, the paper introduces the issue of currency co-movements to the intervention literature. It is shown that the effects of intervention are weakened when adjusting for general currency co-movements against the USD, suggesting that currency co-movements should be taken into account when addressing the effects of central bank intervention aimed at managing a minor currency vis-a-vis a major currency.

Keywords: Foreign Exchange Intervention, Event Studies, Currency Co-movement

JEL Classification: E58, F31, G14, G15

Suggested Citation

Fatum, Rasmus, Daily Effects of Foreign Exchange Intervention: Evidence from Official Bank of Canada Data (June 2005). UC Santa Cruz International Economics Working Paper No. 05-12, Available at SSRN: https://ssrn.com/abstract=754424 or http://dx.doi.org/10.2139/ssrn.754424

Rasmus Fatum (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada
780-492-3951 (Phone)
780-492-3325 (Fax)

HOME PAGE: http://www.bus.ualberta.ca/rfatum