monetary policy actions intervention and exchange rates a reexamination of the empirical relationships using federal funds rate target data the authors reexamine the relationships among federal reserve monetary policy actions u s interventions in currency markets and exchange rates using an alternative measure of monetary policy actions the federal reserve s federal funds rate target they find that exchange rates generally respond immediately to u s monetary policy actions and that these responses are usually consistent with the overshooting hypothesis the authors also find evidence of signaling and leaning against the wind u s intervention policies over the sample however controlling for such interventions do not alter their estimates of exchange rate responses to federal funds rate target changes copyright 1998 by university of chicago press

exchange rate behaviour under the ems regime was there any systematic change abstract most empirical studies fail to detect any systematic effects of the ems regime on the economic performance of member countries this reveals the difficulty of constructing controlled experiments which can distinguish what is due to the ems from that due to common external pressures we argue that the crucial step is to examine the exchange rates distribution since no performance improvements will appear if exchange rate behaviour does not change within the ems we find that there are changes in the third and fourth moments which imply that ems currencies have become more fragile and susceptible to shocks particularly negative shocks relative to non ems currencies

relationships among exchange rates intervention and interest rates an empirical investigation abstract this study uses herefore unavailable daily data on official intervention to test the joint hypotheses of perfect asset substitutability and exchange market efficiency this joint hypothesis is generally soundly rejected for six exchange rates over various sample periods in contrast to evidence elsewhere from weekly or monthly data lagged intervention is a significant determinant of realized profits in about half the cases this evidence is consistent with existence of a portfolio balance channel at least in the short run other evidence indicates that coordinated intervention sometimes may have an impact significantly different from intervention by one central bank alone

in search of the exchange risk premium a six currency test assuming mean variance optimization abstract a number of authors examining deviations of actual rates of currency depreciation from forward discounts have claimed to find evidence of risk premiums if these deviations are indeed partly due to risk premiums rather than being entirely due to expectational errors then they should be systematically related to those variables on which risk premiums are thought to depend finance theory tells us that if investors optimize with respect to mean and variance the risk premium depends in a specific way on 1 the supplies of assets denominated in the various currencies 2 the variance covariance matrix of the rates of return and 3 the coefficient of risk aversion the null hypothesis of this paper is that the coefficient of risk aversion is zero countries assets are perfect substitutes and risk premiums are nonexistent the alternative hypothesis is that rates of return are systematically related to asset supplies by a macroeconomic portfolio balance function the maximum likelihood technique used dominates previous attempts to find such a relationship in that the parameters of the portfolio balance function are constrained to depend on the variance covariance matrix as the finance theory says they should on the other hand the technique also dominates previous applications of the finance theory in that the expected returns are allowed to vary over time as the macroeconomic portfolio balance theory says they should the paper s finding is a statistical inability to reject the null hypothesis for a portfolio of six currencies although this could be due to low power in the test

integrated inventory model for deteriorating items under a multi echelon supply chain environment abstract as the industrial environment becomes more competitive supply chain management has become essential the objective of this research is to develop a multi echelon inventory model for a deteriorating item and to derive an optimal joint total cost from an integrated perspective among the supplier the producer and the buyer a computer code is developed to derive the optimal solution a numerical example is given to illustrate the model this paper shows that the integrated approach strategy results in the lowest joint total cost as compared with the independent decision approaches

accounting for reserves abstract views on the effectiveness of sterilized reserve intervention vary sterilized intervention is generally seen as ineffective in advanced countries while persistent intervention by some emerging markets is often cited as contributing to undervalued exchange rates and current account surpluses this paper argues that capital controls reconcile these views we find strong and highly robust evidence that sterilized intervention is fully offset by outflows of private money in countries without controls while controls partially block this offset for a country with extensive capital controls every dollar in additional reserves increases the current account by some 50 100 cents this is mainly offset by an opposite adjustment in the current account of the united states the dominant reserve currency issuer with the deepest and most liquid bond markets with a smaller diversion to emerging markets

a portfolio balance rational expectations model of the dollar mark exchange rate abstract a model is developed in which current account imbalances can be financed through transfers of bonds denominated in either currency the reduced form links the current spot rate to the expected future spot rate via a risk premium which depends on the global currency mix of outside assets that governments impose on private portfolios through budget deficits and interventions and on the global distribution of private wealth among regions with different portfolio preferences an iterative procedure generates rational expectations forecasts of the dollar mark rate which perform somewhat better than forward rates in predicting monthly changes in the spot rate

identifying the efficacy of central bank interventions evidence from australia and japan abstract using a model incorporating the endogenous relationship between exchange rates and intervention we show how a change in central bank policy can be used as an identification assumption estimating this model with simulated gmm for daily data from australia and japan we find that a us 100 million purchase appreciates the australian dollar by 1 3 1 8 but the yen by just 0 2 almost all of the impact of an intervention occurs during the day it is conducted and we confirm that central banks typically lean against the wind

do macro economic news announcements affect the volatility of foreign exchange rates some evidence from australia this paper investigates the role of australian macro economic announcement news on five major australian dollar aud exchange rates specifically the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news effects in the conditional mean and variance of the changes it is found that a higher than expected current account deficit and unemployment rate announcements depreciated the aud and an unexpectedly higher gdp growth announcement appreciated it current account deficit cpi and unemployment news announcements significantly raised the conditional volatility of the changes of the aud on the days of their announcements except for the bp aud for the cpi news and there is some evidence of retail sales news reducing it in general the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the effects of the particular news announcement and the necessary course of action in add

using survey data to test standard propositions regarding exchange rate expectations survey data provide a measure of exchange rate expectations superior to the forward rate in that no risk premium interferes we estimate extrapolative adaptive and regressive models of expectations static or random walk expectations and bandwagon expectations are rejected current appreciation generates the expectation of future depreciation because variables other than the contemporaneous spot rate receive weight in comparing expectations to the process governing the spot rate we find statistically significant bias no variable is as ubiquitous in international financial theory and yet as elusive empirically as investors expectations regarding exchange rates in the past expectations have been modeled in an ad hoc way often by using the forward exchange rate there is however a serious problem with using the forward discount as the measure of the expected change in the exchange rate in that the two may not be equal the gap that may separate the forward discount and expected depreciation is generally interpreted as a risk premium most of the large empirical literature testing the unbiasedness of the forward exchange rate for example has found it necessary either arbitrarily to assume away the existence of the risk premium if the aim

policy bargains and the problem of model selection abstract parameter uncertainty and disagreements about model specification pose a particular difficulty for economic policy design frankel and rockett argue that if model uncertainty is not explicitly taken into account policy coordination is as likely to decrease welfare as increase it this paper therefore looks at the scope for reducing errors by making strategic model choices part of the overall policy selection procedure it shows that alternative definitions of the policy bargain produces decisions which are robust against disagreements about the correct model while alternative choices of model produce policies which are robust against model uncertainty hence fixed i e model free policy rules are no substitute for making strategic model choices

intervention strategies and exchange rate volatility a noise trading perspective abstract this paper estimates and explains the impacts of sterilized us intervention on exchange rate volatility i find that intervention reduced both yen dollar and dm dollar exchange rate volatilities during 1985 1986 but increased them during 1987 1989 these results are explained in a noise trading framework where the effectiveness of sterilized intervention may depend critically on the design and implementation of intervention strategies jel f31 1997 elsevier science ltd

the effectiveness of central bank intervention in the ems the post 1993 experience abstract we analyze the effectiveness of intervention in the european monetary system by using data on the dem intervention activity of six european central banks covering the period from august 1993 to april 1998 to allow for regime specific intervention effects we estimate markov switching autoregressive conditional heteroscedasticity models we find that interventions have only limited effects on the conditional means and variances

the time variation of risk and return in the foreign exchange and stock markets this paper attempts to determine whether the fluctuations of conditional first and second moments which are observed for many assets are consistent with the sharpelintner mossin capital asset pricing model we test the mean variance model under several different assumptions about the time variation of conditional second moments of returns using weekly data from july 1974 to december 1986 that include returns on a portfolio composed of dollar deutsche mark sterling and swiss franc assets together with the u s stock market the results indicate that estimated conditional variances cannot explain the observed time variation of risk premia rates of return on international financial assets are characterized by statistical properties that are quite common to all financial markets they are highly volatile and largely unpredictable these properties make it very difficult to extract statistically reliable estimates of systematic exchange rate and assetprice movements and are at the root of the generally poor empirical performance of international asset pricing models nevertheless two important results have been uncovered by empirical researchers and can be considered a fair characterization of the data a expected returns on foreign assets vary over time cumby and obstfeld 1981 and the numerous articles that followed recently surveyed by frankel and meese 1987 b the volatility of returns of foreign assets also changes over time cumby and obstfeld 1984 hodrick and srivastava 1984 and hsieh 1988 among others as giovannini and jorion 1987 suggest the

tests of international capm with time varying covariances we perform maximum likelihood estimation of a model of international asset pricing based on capm we test the restrictions imposed by capm against a more general asset pricing model the betas in our capm vary over time as the supplies of assets change and as the conditional covariances or returns on those assets change we let the covariances change over time as a function of macroeconomic data and an alternative model allows the covariances to follow a multivariate arch process we also can identify a modified capm model with measurement error we find that the estimated capm performs much better when variances are not constant over time nonetheless capm is rejected in favour of the lessrestricted model of asset pricing

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

effects of exchange rate variability on inflation variability abstract previous studies have postulated that there exists a positive relationship between the rate of inflation and its variability they have shown that a high inflation rate contributes to inflation variability in this paper we argue that with the current floating exchange rate system exchange rate variability is another factor contributing to inflation variability after incorporating a measure of exchange rate variability into a simple model used by previous authors we estimate our model using cross country data from 20 developed and 76 less developed countries the cross sectional regression results support our conjecture

foreign exchange market interventions and the exchange rate in the long run this article examines whether foreign exchange market interventions conducted by the bank of japan are important for the dollar yen exchange rate in the long run we rely on a re examination of the empirical performance of a monetary exchange rate model this is basically not a new topic however we focus on two new questions first does the consideration of periods of massive interventions in the foreign exchange market uncover a potential long run relationship between the exchange rate and its fundamentals second do forex interventions support the adjustment towards a long run equilibrium value our results suggest that taking periods of interventions into account within a monetary model does improve the goodness of fit of an identified long run relationship to a significant degree furthermore forex interventions increase the speed of adjustment towards long run equilibrium in some periods particularly in periods of coordinated forex interventions our results indicate that only coordinated inter

optimal control of a divergent multi echelon inventory system consider a divergent multi echelon inventory system such as a distribution system or a production system at every facility in the system orders are placed or production is initiated periodically the order arrives after a fixed lead time at the end of each period linear costs are incurred penalty costs are incurred at the most downstream facilities for back orders the objective is to minimize the expected holding and penalty costs per period we prove that under the balance assumption it is cost optimal to control every facility by an order up to policy the optimal replenishment policy i e the order up to level and the allocation functions at each facility can be determined by system decomposition this decomposition reduces complex multi dimensional control problems to simple one dimensional problems

the effectiveness of foreign exchange interventions under a floating exchange rate regime for the turkish economy a post crisis period analysis the reported study has two purposes first it attempts to improve the literature on foreign exchange interventions of the central banks for the emerging market economies an area not previously studied in detail the turkish economy in the post crisis period constitutes a good example in this context second it proposes a new methodology a time varying parameter model to analyse the effectiveness of the foreign exchange interventions when the results from such an exercise are compared with those obtained from an event study analysis it is found that purchase based interventions seem to be successful especially after stabilization of the financial markets in that sense an asymmetry is detected regarding the effectiveness of interventions concerning the relationship between interest rates and exchange rates it is found that the uncovered interest rate parity condition operates in an unconventional way supporting the views put forward by recent emerging markets literature

information sharing and central bank intervention in the foreign exchange market abstract this paper develops a model of information sharing among heterogeneously informed agents and it uses the model to examine a rationale for intervention in the foreign exchange market the model shows that in a partially revealing rational expectations equilibrium some agents can gain by sharing among themselves private information about transitory exchange rate disturbances in this setting a central bank can affect the exchange rate by aggregating and disseminating agents information the paper also illustrates the usefulness of intervention as a way to transmit that information

approximations of dynamic multilocation production and inventory problems consider a central depot or plant which supplies several locations experiencing random demands orders are placed or production is initiated periodically by the depot the order arrives after a fixed lead time and is then allocated among the several locations the depot itself does not hold inventory the allocations are finally received at the demand points after another lag unfilled demand at each location is backordered linear costs are incurred at each location for holding inventory and for backorders also costs are assessed for orders placed by the depot the object is to minimize the expected total cost of the system over a finite number of time periods this system gives rise to a dynamic program with a state space of very large dimension we show that this model can be systematically approximated by a single location inventory problem all the qualitative and quantitative results for such problems can then be applied

central banks and macroeconomic policy choices relaxing the trilemma abstract macroeconomic policy choices in open economies are constrained by the trilemma according to which the objectives of exchange rate stability monetary independence and capital mobility cannot be attained jointly this paper shows that foreign exchange interventions provide an effective instrument to relax the trilemma an active reserve policy allows central banks to pursue independent monetary and exchange rate policies when the capital account is liberalised we use the framework of the portfolio balance model to show that exchange market interventions may substitute for capital controls both allow a country to achieve the other two objectives of the trilemma our empirical analysis of a large country panel data set covering the period 1970 2010 confirms this theoretical insight the weighted sum of the three trilemma objectives increases in the degree of foreign exchange market intervention the capacity to relax the trilemma constraint has increased over time and has been most effective in emerging markets

integrating resource and production decisions in a simple multi stage assembly system we consider a simple multi stage assembly system with stationary stochastic demand for a single final product that is made to stock the assembly tasks are performed by human resources this workforce consists of two parts regular workforce with a long term contract and temporary workforce that are contracted based on the actual demand contracting resources early is always cheaper than contracting later when we separate resource and production decisions we can first determine order up to levels and production decisions in a standard way and afterwards find the best mix of regular and temporary workforce next to this decoupled approach we present an integrated approach where these decisions influence each other in a set of examples we show that the integrated approach can be very beneficial

foreign exchange intervention in emerging markets a survey of empirical studies nowadays foreign exchange interventions occur in emerging market economies whereas empirical studies on interventions mainly refer to advanced economies however interventions in emerging markets are different from those in advanced economies they occur regularly and central banks have considerable leverage derived from relatively high reserves some non sterilisation the central bank s information advantage and capital controls consequently these interventions often successfully impact the level and volatility of exchange rates nevertheless more research on interventions in emerging markets is needed analysing the influence of heterogeneous institutional circumstances examining the role of central bank communication and using high frequency data

gold monetization and gold discipline gold and its price have emerged as frequent topics of both academic and government debate 2 public attention focused on the gold market since gold s price began fluctuating violently in 1980 and 1981 has turned to gold as a possible means of removing some discretion inherent in the current fiat money system since lack of adherence to monetary rules can lead to problems of dynamic policy inconsistency academic economists have begun seriously to reconsider monetary standards based either on gold or on some other commodity as politically feasible methods of establishing rules 3

how well can the new open economy macroeconomics explain the exchange rate and current account abstract this paper advances the new open economy macroeconomic literature in an empirical direction estimating and testing a two country model fit to u s and g7 data the model performs moderately well for the exchange rate and current account results offer guidance for future theoretical work parameter estimates lend support to the assumption of local currency pricing estimates are found for key parameters commonly calibrated in the theoretical literature such as the elasticity of substitution between home and foreign composite goods and the response of a country s risk premium to the net foreign asset position results also indicate that deviations from interest rate parity are not closely related to monetary policy shocks as recently hypothesized but that these deviations are strongly related to shifts in the current account

target zones and international policy coordination the contrast between the necessary and sufficient conditions for success abstract this paper distinguishes between the necessary and sufficient conditions for adopting exchange rate target zones for improving macroeconomic performance the necessary conditions are easily satisfied but it is much more difficult to design a targetting system which satisfies the sufficient conditions when the exchange rate is an intermediate target on that criterion the gains may be smaller than previously estimated however target zones have important practical advantage they are effective in promoting stability and as a simple but uncontroversial way of securing the coordination necessary to prevent policy makers adopting inefficient or competitive policies

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

are foreign exchange forecasts rational new evidence from survey data abstract tests of rationality in foreign exchange markets have been inconclusive because of disagreement over the relevant asset pricing model this paper uses a newly available set of data on foreign exchange expectations to directly test the rationality of four foreign currency markets overall the results reject the rational expectations hypothesis

a test of perfect substitutability in the foreign exchange market i motivations for the test the question of whether or not domestic bonds are perfect substitutes for foreign bonds in investors portfolios implying that the expected rates of returns must be equalized across currencies is an important one for two reasons the question is crucial first for choosing among various asset market models of exchange rate determination and second for evaluating tests of efficiency in the forward exchange market to illuminate the first motivation a brief discussion of models of exchange rate determination is necessary all asset market models share the assumption that there are no significant transactions costs capital controls or other impediments to the international flow of capital thus actual portfolios adjust instantaneously to equal desired portfolios this implies for example covered interest parity the domestic interest rate should differ from the foreign interest rate by an amount exactly equal to the forward discount rate perfect substitutability between domestic and foreign bonds is the stronger assumption that market participants are indifferent as to the currency composition of their portfolio it implies uncovered interest parity the domestic interest rate must differ from the foreign interest rate by an amount exactly equal to the expected rate of depreciation the perfect substitutability assumption is far from standard in fact exchange rate models within the asset market view can be classified into those that belong to the monetary approach defined by the assumption of perfect substitutability and those that belong to the portfolio balance approach defined by the assumption of imperfect substitutability in the portfolio balance approach investors hold well defined proportions of their wealth in the form of each country s assets with the proportions depending on the expected rates of return as in equation 1

central bank intervention and exchange rate volatility abstract this paper explores the effects of foreign exchange intervention by central banks on the behavior of exchange rates the g 3 central banks have undertaken an unprecedented number of both coordinated and unilateral intervention operations in the last 10 years existing empirical evidence on the effectiveness of intervention is mixed studies using data from the 1970s suggest that intervention operations that do not affect the monetary base have at most a short lived influence on exchange rates but more recent studies indicate that the intervention operations that followed the plaza agreement influenced both the level and variance of exchange rates this paper examines the effects of us german and japanese monetary and intervention policies on dollar mark and dollar yen exchange rate volatility over the 1977 1994 period the results indicate that intervention operations generally increase exchange rate volatility this is particularly true of secret interventions which are those undertaken by central banks without notification of the public overt interventions in the mid 1980s appear to have reduced exchange rate volatility but in other periods and for the 1977 1994 period as a whole central bank intervention is associated with greater exchange rate volatility

on the effects of sterilized intervention an analysis of weekly data abstract as the recent empirical studies surveyed here illustrate it is very difficult to demonstrate that the exchange rate risk premium depends through a portfolio balance channel on the currency composition of outside assets the existence of a portfolio balance effect is a necessary condition for sterilized intervention to be a genuinely independent tool of monetary policy this paper studies u s canadian data and attempts to improve on earlier studies by using higher frequency weekly data and by implementing an appropriate instrumental variables technique 2s2sls however we still fail to detect evidence of a portfolio balance effect

does foreign exchange intervention matter the portfolio effect until recently there was an unusual degree of consensus among economists that intervention by central banks in the foreign exchange market did not offer an effective or lasting instrument for affecting the exchange rate at least not independently of monetary policy this consensus was largely shared among policymakers and participants in the financial markets as well the 1982 g 7 economic summit at versailles commissioned a study of intervention known as the jurgenson report which found that the effects were small and transitory at most we think that the time is ripe for new statistical testing of the question many policymakers and foreign exchange traders believe that the intervention operations that have taken place since the plaza agreement of september 1985 have had an effect especially when operations are coordinated moreover the theoretical case against the effectiveness of intervention is not as clear as a reading of the economics literature might suggest the academic literature is predicated on the distinction between intervention operations that are sterilized and those that are allowed to affect the money supply we study the intervention operations that actually took place between 1982 and 1988 regardless of whether they were sterilized however we do begin in section i with a review of the issues involved 2 there are two possible channels through which intervention whether sterilized or not can influence the foreign exchange rate the portfolio and the expectations channels intervention can even if sterilized influence exchange rates through the portfolio channel provided foreign and domestic bonds are considered imperfect substitutes in investors portfolios intervention operations that for example increase the current relative supply of mark to dollar assets which private investors are obliged to accept into their portfolios will force a decrease in the relative price of mark assets 3 intervention can also influence exchange rates regardless of whether foreign and domestic bonds are imperfect substitutes through the expectations channel the public information that central banks are intervening in support of a currency or are planning to intervene in the future may under certain conditions cause speculators to expect an increase in the price of that currency in the future speculators react to this information by buying the currency today bringing about the change in the exchange rate today in sections ii and iii we describe the econometric problems that arise in the standard portfolio balance estimation equation we derive an alternative portfolio balance dominguez kennedy school of government harvard university 79 j f kennedy street cambridge ma 02138 frankel department of economics university of california 787 evans hall berkeley ca 94720 we thank three anonymous referees for valuable comments and suggestions julia marsh and julia lowell for research assistance and franz scholl at the bundesbank jean pierre roth at the swiss national bank and officials at the u s treasury and the board of governors of the federal reserve system for making the daily intervention data available 1many of the econometric results finding little or no effect were reported in kenneth s rogoff 1984 and dale w henderson and stephanie sampson 1983 2for authoritative statements see henderson 1984 or maurice obstfeld 1990 3the exchange rate reaction to an increase in the relative supply of outside foreign assets may be reduced if there is an increase in their expected rate of return that induces a corresponding increase in demand

fed intervention dollar appreciation and systematic risk abstract in a four factor asset pricing model estimated on daily data fed intervention significantly affects betas of surprises in the market return expected inflation rate yield curve and corporate bond risk premium fed foreign currency sales cause economically and statistically significant increases in the systematic risk premium in appreciation and thus in the dollar s expected appreciation rate the direction the fed desires and consistent with the signaling but not the portfolio balance channel intervention s effects on actual appreciation are less reliable they depend on unpredictable risk factor realizations even successful intervention to strengthen the dollar may be costly by increasing the dollar s systematic risk intervention reduces the attractiveness of u s relative to foreign investments further uncertainty about future fed interventions may induce resource misallocation ceteris paribus investors find it harder to estimate risk adjusted discount rates and forecast the home currency value of cash flows

a class of quadratic options for exchange rate stabilization abstract we propose the use of a new option which we call quadratic and that central banks could use to smooth exchange rate volatility through the hedging strategies of the issuers we derive analytic pricing and hedging formulas we suggest a criterion to derive the optimal for the central bank option parameters finally we perform several simulation exercises which show the effectiveness of using this option with or without conventional spot interventions

on the theory of international currency portfolios abstract the paper develops a general equilibrium theory of the optimal currency composition of international bond portfolios like the partial equilibrium portfolio balance literature of the 1980s the theory emphasizes the critical roles of government debt and government balance sheet operations in the determination of portfolios prices and allocations consistent with empirical findings optimal foreign currency positions are found to be small with their size decreasing with exchange rate volatility while optimal domestic currency positions are large and increasing with domestic interest rates a large open market purchase of domestic currency bonds from private households lowers domestic interest rates

are forign exchange intervention and monetary policy related and does it really matter the relationship between foreign exchange intervention and monetary policy underlies the question of whether sterilized interventions can affect the exchange rate in this article the author examines this relationship using data on u s foreign exchange interventions from 1985 to 1990 recently made publicly available she examines whether interventions could be viewed as signaling changes in future monetary policy variables the author also considers whether changes in monetary policy may induce interventions in an effort by central bankers to lean against the wind of exchange rate movements interestingly she finds evidence both that interventions help predict monetary policy variables and that monetary variables help predict interventions copyright 1995 by university of chicago press

exchange rate management in emerging markets intervention via an electronic limit order book this paper describes and analyzes the implementation of a crawling exchange rate band on an electronic trading platform the placement of limit orders at the central bank s target rate serves as a credible policy statement that may coordinate beliefs of market participants we find for our sample that intervention increases exchange rate volatility and spread for the next minutes but that intervention days show a lower degree of volatility and spread than non intervention days we also show for intraday data that the price impact of interbank order flow is smaller on intervention days than on non intervention days these stabilizing effects however rely on the conditions of large currency reserves and the existence of capital controls an electronic market seems to support this goal

foreign currency government debt asset markets and balance of payments abstract foreign currency government borrowing has implications for modelling asset markets and the balance of payments geographical balance of payments flows can be misleading indicators of exchange rate pressures in a world characterized by foreign currency govenment debt because the latter alter the currency composition of global asset supplies in a manner similar to foreign exchange market intervention a theoretical currency reinterpretation of the balance of payments is proposed and some estimates of the magnitude oecd foreign currency government borrowing are offered however more comprehensive measures of asset supplies may not by themselves improve the performance of simple portfolio balance models