The Intraday Effects of Central Bank Intervention on Exchange Rate Spreads

Rasmus Fatum*, Jesper Pedersen, Peter Norman Sørensen

*Corresponding author af dette arbejde

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    Abstrakt

    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.
    OriginalsprogEngelsk
    TidsskriftJournal of International Money and Finance
    Vol/bind33
    Sider (fra-til)103-117
    Antal sider15
    ISSN0261-5606
    DOI
    StatusUdgivet - 2013

    Emneord

    • ERM II
    • Exchange rate spreads
    • Foreign exchange intervention
    • Intraday data

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