When is Foreign Exchange Intervention Effective? Evidence from 33 Countries

71 Pages Posted: 19 Nov 2015 Last revised: 25 Apr 2017

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Oliver Gloede

Leibniz Universität Hannover

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Lucio Sarno

City University London - Sir John Cass Business School; Centre for Economic Policy Research (CEPR)

Tobias Stoehr

Kiel Institute for the World Economy; German Institute for Economic Research (DIW Berlin); IZA

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Date Written: November 2015

Abstract

This study 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, capital controls

JEL Classification: F31, F33, E58

Suggested Citation

Fratzscher, Marcel and Gloede, Oliver and Menkhoff, Lukas and Sarno, Lucio and Stoehr, Tobias, When is Foreign Exchange Intervention Effective? Evidence from 33 Countries (November 2015). DIW Berlin Discussion Paper No. 1518. Available at SSRN: https://ssrn.com/abstract=2692438 or http://dx.doi.org/10.2139/ssrn.2692438

Marcel Fratzscher (Contact Author)

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Oliver Gloede

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Lucio Sarno

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Tobias Stoehr

Kiel Institute for the World Economy ( email )

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

IZA ( email )

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