DP5729 A Critical Appraisal of Recent Developments in the Analysis of Foreign Exchange Intervention

Author(s): Paolo Vitale
Publication Date: June 2006
Keyword(s): exchange rate dynamics, foreign exchange micro structure, official intervention
JEL(s): D82, G14, G15
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5729

We offer a critical review of recent developments in the study of foreign exchange intervention. In particular, we discuss some unresolved issues, such as the secrecy puzzle, the relevance of the signalling and portfolio-balance effect hypotheses, the identification of the impact of foreign exchange intervention on currency values. We suggest that: i) the unresolved nature of these issues is partly due to the absence of a market microstructure perspective in most of the existing analysis of foreign exchange intervention; and ii) that recent promising advances in this strand of research have not fully exploited the potential of such perspective.