The Market Microstructure of Central Bank Intervention

University of Michigan Discussion Paper No. 412

30 Pages Posted: 16 Dec 2002

See all articles by Kathryn M.E. Dominguez

Kathryn M.E. Dominguez

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 1997

Abstract

One of the great unknowns in international finance is the process by which new information influences exchange rate behavior. Until recently, data constraints have limited our ability to examine this issue. The Olsen and Associates high-frequency spot market data greatly expand the range of testable hypotheses regarding the influence of information. This paper focuses on one important source of information to the foreign exchange markets, the intervention operations of the G-3 central banks. Previous studies using daily and weekly foreign exchange rate data suggest that central bank intervention operations can influence both the level and variance of exchange rates, but little is known about how exactly traders learn about these operations and whether intra-daily market conditions influence their effectiveness. Using high-frequency data, this paper will examine the relationship between the efficacy of intervention operations and the "state of the market" at the moment that the operation is made public to traders.

JEL Classification: E58, F31

Suggested Citation

Dominguez, Kathryn M.E., The Market Microstructure of Central Bank Intervention (July 1997). University of Michigan Discussion Paper No. 412, Available at SSRN: https://ssrn.com/abstract=93661 or http://dx.doi.org/10.2139/ssrn.93661

Kathryn M.E. Dominguez (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

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Ann Arbor, MI 48109
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HOME PAGE: http://www-personal.umich.edu/~kathrynd/

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