Exchange Rate Management in Emerging Markets: Intervention via an Electronic Limit Order Book
52 Pages Posted: 27 May 2009
There are 2 versions of this paper
Automating Exchange Rate Target Zones: Intervention Via an Electronic Limit Order Book
Date Written: May 2009
Abstract
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.
Keywords: exchange rates, intervention, microstructure
JEL Classification: F39, G15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Official Intervention in the Foreign Exchange Market: Is it Effective, and, If so, How Does it Work?
By Mark P. Taylor and Lucio Sarno
-
By Gabriele Galati and William R. Melick
-
U.S. Intervention: Assessing the Probability of Success
By Owen Humpage
-
Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?
-
Is Foreign Exchange Intervention Effective?: The Japanese Experiences in the 1990s
-
Does Foreign Exchange Intervention Signal Future Monetary Policy?
By Graciela Kaminsky and Karen K. Lewis
-
The Practice of Central Bank Intervention: Looking Under the Hood
-
Is Sterilized Foreign Exchange Intervention Effective after All? An Event Study Approach
By Rasmus Fatum and Michael M. Hutchison