The Intraday Effects of Central Bank Intervention on Exchange Rate Spreads

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The Intraday Effects of Central Bank Intervention on Exchange Rate Spreads

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Title: The Intraday Effects of Central Bank Intervention on Exchange Rate Spreads
Author: Fatum, Rasmus; Pedersen, Jesper; Norman Sørensen, Peter
Abstract: We investigate the intraday effects of intra-marginal intervention in a horizontal band on the exchange rate spread. Official intraday data on Danish intervention transactions in the ERM II, the Exchange Rate Mechanism of the European Union, facilitates our analysis. We show that intervention purchases and sales both exert a significant influence on the exchange rate spread, but in opposite directions. Intervention purchases of the small currency, on average, narrow the spread while intervention sales of the small currency, on average, widen the spread. This is a novel finding that differs from those of existing studies that find intervention always widens the exchange rate spread and increases market uncertainty.
URI: http://hdl.handle.net/10398/9103
Date: 2015-01-26
Notes: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Money and Finance, VOL33, March 2013. DOI:10.1016/j.jimonfin.2012.10.006

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