When is Foreign Exchange Intervention Effective? Evidence from 33 Countries

62 Pages Posted: 5 Nov 2015 Last revised: 12 Jul 2016

See all articles by Marcel Fratzscher

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Oliver Gloede

Leibniz Universität Hannover

Lukas Menkhoff

Kiel Institute for the World Economy; German Institute for Economic Research (DIW Berlin); Humboldt-Universität zu Berlin

Lucio Sarno

University of Cambridge - Judge Business School; Centre for Economic Policy Research (CEPR)

Tobias Stoehr

Kiel Institute for the World Economy; German Institute for Economic Research (DIW Berlin); IZA

Multiple version iconThere are 3 versions of this paper

Date Written: July 6, 2016

Abstract

This study examines foreign exchange intervention based on novel daily data covering 33 countries from 1995 to 2011. We find that intervention is widely used and an effective policy tool, with a success rate in excess of 80 percent under some criteria. The policy works well in terms of smoothing the path of exchange rates, and in stabilizing the exchange rate in countries with narrow band regimes. Moving the level of the exchange rate in flexible regimes requires that some conditions are met, including the use of large volumes and that intervention is made public and supported via communication.

Keywords: foreign exchange intervention, exchange rate regimes, effectiveness measures, communication, capital controls

JEL Classification: F31, F33, E58

Suggested Citation

Fratzscher, Marcel and Gloede, Oliver and Menkhoff, Lukas and Sarno, Lucio and Stoehr, Tobias, When is Foreign Exchange Intervention Effective? Evidence from 33 Countries (July 6, 2016). Available at SSRN: https://ssrn.com/abstract=2686434 or http://dx.doi.org/10.2139/ssrn.2686434

Marcel Fratzscher

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Oliver Gloede

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Lukas Menkhoff

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt-Universität zu Berlin ( email )

Humboldt Universität
Unter den Linden 6
Berlin, 10099
Germany

Lucio Sarno (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Tobias Stoehr

Kiel Institute for the World Economy ( email )

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

IZA ( email )

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