DP3085 A Transaction Level Study of the Effects of Central Bank Intervention of Exchange Rates

Author(s): Richard Payne, Paolo Vitale
Publication Date: November 2001
Keyword(s): foreign exchange market, market microstructure, sterilized intervention
JEL(s): F31, G14, G15
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3085

We study the effects of sterilized intervention operations executed on behalf of the Swiss National Bank (SNB) using tick-by-tick transaction data between 1985-95.We extend preliminary analysis conducted by Fischer and Zurlinden (1999) by matching these data with intra-day indicative exchange ate quotes and with news-wire reports of central banks ?activity. Via an event study analysis we find that intervention has important short-run effects on exchange ate returns and volatility. In particular, among various results, we find that intervention i) has a stronger impact when the SNB moves with-the-market and when its activity is concerted with that of other central banks, ii) is partially anticipated by the market and iii) temporarily reduces market liquidity.