The intraday effects of central bank intervention on exchange rate spreads

Rasmus Fatum; Jesper Pedersen; Peter Norman Sørensen

doi:10.1016/j.jimonfin.2012.10.006

The intraday effects of central bank intervention on exchange rate spreads

Rasmus Fatum, Jesper Pedersen, Peter Norman Sørensen

Department of Economics

5 Citations (Scopus)

Abstract

We investigate the intraday effects of intra-marginal intervention in a horizontal band on the exchange rate spread. Official intraday data on Danish intervention transactions in the ERM II, the Exchange Rate Mechanism of the European Union, facilitates our analysis. We show that intervention purchases and sales both exert a significant influence on the exchange rate spread, but in opposite directions. Intervention purchases of the small currency, on average, narrow the spread while intervention sales of the small currency, on average, widen the spread. This is a novel finding that differs from those of existing studies that find intervention always widens the exchange rate spread and increases market uncertainty.

Translated title of the contribution	Intradagseffekterne af centralbanksintervention på valutakursspænd
Original language	English
Journal	Journal of International Money and Finance
Volume	33
Pages (from-to)	103-117
ISSN	0261-5606
DOIs	https://doi.org/10.1016/j.jimonfin.2012.10.006
Publication status	Published - Mar 2013

Keywords

Foreign exchange intervention
ERM II
Exchange rate spreads
Intraday data

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10.1016/j.jimonfin.2012.10.006

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title = "The intraday effects of central bank intervention on exchange rate spreads",

abstract = "We investigate the intraday effects of intra-marginal intervention in a horizontal band on the exchange rate spread. Official intraday data on Danish intervention transactions in the ERM II, the Exchange Rate Mechanism of the European Union, facilitates our analysis. We show that intervention purchases and sales both exert a significant influence on the exchange rate spread, but in opposite directions. Intervention purchases of the small currency, on average, narrow the spread while intervention sales of the small currency, on average, widen the spread. This is a novel finding that differs from those of existing studies that find intervention always widens the exchange rate spread and increases market uncertainty.",

keywords = "Foreign exchange intervention, ERM II, Exchange rate spreads, Intraday data",

author = "Rasmus Fatum and Jesper Pedersen and S{\o}rensen, {Peter Norman}",

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doi = "10.1016/j.jimonfin.2012.10.006",

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T1 - The intraday effects of central bank intervention on exchange rate spreads

AU - Fatum, Rasmus

AU - Pedersen, Jesper

AU - Sørensen, Peter Norman

N1 - JEL classifications: E58; F31; G15

PY - 2013/3

Y1 - 2013/3

N2 - We investigate the intraday effects of intra-marginal intervention in a horizontal band on the exchange rate spread. Official intraday data on Danish intervention transactions in the ERM II, the Exchange Rate Mechanism of the European Union, facilitates our analysis. We show that intervention purchases and sales both exert a significant influence on the exchange rate spread, but in opposite directions. Intervention purchases of the small currency, on average, narrow the spread while intervention sales of the small currency, on average, widen the spread. This is a novel finding that differs from those of existing studies that find intervention always widens the exchange rate spread and increases market uncertainty.

AB - We investigate the intraday effects of intra-marginal intervention in a horizontal band on the exchange rate spread. Official intraday data on Danish intervention transactions in the ERM II, the Exchange Rate Mechanism of the European Union, facilitates our analysis. We show that intervention purchases and sales both exert a significant influence on the exchange rate spread, but in opposite directions. Intervention purchases of the small currency, on average, narrow the spread while intervention sales of the small currency, on average, widen the spread. This is a novel finding that differs from those of existing studies that find intervention always widens the exchange rate spread and increases market uncertainty.

KW - Foreign exchange intervention

KW - ERM II

KW - Exchange rate spreads

KW - Intraday data

U2 - 10.1016/j.jimonfin.2012.10.006

DO - 10.1016/j.jimonfin.2012.10.006

M3 - Journal article

SN - 0261-5606

VL - 33

SP - 103

EP - 117

JO - Journal of International Money and Finance

JF - Journal of International Money and Finance

ER -

The intraday effects of central bank intervention on exchange rate spreads

Abstract

Keywords

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