The coordination channel of foreign exchange intervention : a nonlinear microstructural analysis
Reitz, Stefan and Taylor, Mark P., 1958-. (2008) The coordination channel of foreign exchange intervention : a nonlinear microstructural analysis. European Economic Review, Vol.52 (No.1). pp. 55-76. ISSN 0014-2921Full text not available from this repository.
Official URL: http://dx.doi.org/10.1016/j.euroecorev.2007.06.023
Taylor (1994, 1995) [Taylor, M.P., 1994. Exchange rate behaviour under alternative exchange rate regimes. In: Kenen, P. (Ed.), Understanding Interdependence: The Macroeconomics of the Open Economy. Princeton University Press, Princeton; Taylor, M.P., 1995. The economics of exchange rates. Journal of Economic Literature 33, 13-47] has proposed the coordination channel as a means by which foreign exchange market intervention may be effective, in addition to the traditional portfolio balance and signalling channels. If strong and persistent misalignments of the exchange rate are caused by nonfundamental influences, such that a return to equilibrium is hampered by a coordination failure among fundamentals-based traders, then official intervention may act as a coordinating signal, encouraging stabilising speculators to re-enter the market at the same time. We develop this idea in the framework of a simple microstructural model of exchange rate movements, which we then estimate using daily data on the dollar-mark exchange rate and on Federal Reserve and Bundesbank intervention operations. The results are supportive of the existence of a coordination channel of intervention effectiveness.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Foreign exchange administration, International economic relations, International trade -- Econometric models|
|Journal or Publication Title:||European Economic Review|
|Number of Pages:||22|
|Page Range:||pp. 55-76|
|Access rights to Published version:||Restricted or Subscription Access|
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