Beine, Michel, de Grauwe, Paul and Grimaldi, Marianna (2009) The impact of FX central bank intervention in a noise trading framework. Journal of banking & finance, 33 (7). pp. 1187-1195. ISSN 0378-4266
Abstract
In this paper, we analyse the effectiveness of the direct central bank interventions using a new effectiveness criterion. To this aim, we investigate the effects of central bank interventions (CBI) in a noise trading model with chartists and fundamentalists. We first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a fundamental value. Then, we investigate the role of central bank interventions for explaining the switching properties between the two types of agents. We find evidence that in the medium run, interventions increase the proportion of fundamentalists and therefore exert some stabilizing influence on the exchange rate.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.journals.elsevier.com/journal-of-bankin... |
| Additional Information: | © 2009 Elsevier |
| Uncontrolled Keywords: | FX markets, central bank intervention effectiveness, Chartist-fundamentalist regimes, signalling channel |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory |
| Journal of Economic Literature Classification System: | C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C10 - General F - International Economics > F3 - International Finance > F31 - Foreign Exchange F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics |
| Sets: | Departments > European Institute Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/45123/ |
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