Work

The impact of FX intervention on FX markets: a market microstructure analysis

Year: 2010

Type: article

Abstract: We formulate a market microstructure model of exchange determination we employ to investigate the impact of foreign exchange (FX) intervention on exchange rates and on FX market conditions. With our formulation we show: (i) how FX intervention influences exchange rates via both a portfolio-balance and a signalling channel; and (ii) derive a series of testable implications which are coherent with a large body of empirical research. Our investigation also proposes some normative recommendations, as we show: (i) that in extreme circumstances large-scale FX intervention can have destabilizing effects for the functioning of FX markets; and (ii) that the route chosen for the implementation of official intervention has important implications for its impact on exchange rates and on market conditions. Copyright © 2010 John Wiley & Sons, Ltd.

Source: International Journal of Finance & Economics

DOI: 10.1002/ijfe.418

Author: Paolo Vitale

Institutions: University of Chieti-Pescara, Centre for Economic Policy Research

Language: English

Topic: Global Financial Crisis and Policies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: Università degli Studi di Salerno

OpenAlex ID: W1993933279

FWCI: 4.448

Cites: 55

Cited by: 30

Related to: 10