Canadian Intervention in the Foreign Exchange Market: A Note

Longworth, David

doi:10.2307/1924757

Cited by 23 publications

(6 citation statements)

References 4 publications

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“…The moving average coefficient pL,l for the U.S. dollar is statistically significant and negative, indicating that changes in U.S.-Canadian dollar exchange rates are negatively autocorrelated over time. This finding is consistent with the "leaning against the wind" (for the U.S. dollar) strategy followed by the Bank of Canada, e.g., Longworth [22], and Murray, Zelmer, and Williamson [23]. That is, the latter strategy involves opposing large movements in the U.S.-Canadian dollar exchange rate in the short run for the purpose of maintaining an orderly market.…”

Section: Empirical Findings Egarch-in-mean and Asymmetric Effectssupporting

confidence: 81%

“…The majority of papers reports that exchange rate changes behave stochastically as GARCH processes and that their distributions have fatter tails (leptokurtic) relative to the normal distribution. Several papers have been published dealing with Canadian exchange rates, e.g., Akgiray and Booth [2], Booth and Chowdhury [lo], and Longworth [22]. However, their focus has been mainly economic.…”

Section: Introductionmentioning

confidence: 99%

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The Stochastic Properties of Major Canadian Exchange Rates

Theodossiou

1994

The Financial Review

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This paper extends the results of Akgiray and Booth [2] on the stochastic properties of five major Canadian exchange rates using the EGARCH‐M model along with the generalized error distribution (GED). In addition to the issue of first‐ and second‐order dependencies, explored by the authors, the paper (1) addresses the issue of asymmetric volatility, (2) examines the extent to which volatility affects future movements in these exchange rates, (3) measures the amount of kurtosis in the data, and (4) investigates the transmission mechanism of innovations and volatility shocks across the five Canadian exchange rate markets. The five Canadian dollar exchange rates are for the U.S. dollar, the Japanese yen, the British pound, the German mark, and the French franc. Changes in Canadian exchange rates are conditionally heteroskedastic, a finding which is in line with that of Akgiray and Booth [2]. There is no evidence supporting the assertion that volatility triggers such changes. The hypothesis of asymmetric volatility is rejected for all Canadian exchange rates; thus unexpected appreciations and depreciations of the Canadian currency have similar impact on future volatility of these exchange rates. Innovations in the Canadian exchange rate markets for the U.S. dollar, the British pound, and French franc influence the Japanese yen market, while innovations in the markets of the British pound and German mark influence the French franc market. Significant but negative volatility spillovers radiate from the German mark market to the U.S. dollar market and from the French franc market to the German mark market, resulting in lower levels of volatility in both the U.S. and German markets. The distributions of all five series of Canadian exchange rates are highly leptokurtic relative to the normal distribution. The GED distribution provides a good characterization of these distributions.

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Section: Empirical Findings Egarch-in-mean and Asymmetric Effectssupporting

confidence: 81%

Section: Introductionmentioning

confidence: 99%

The Stochastic Properties of Major Canadian Exchange Rates

Theodossiou

1994

The Financial Review

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“…The equation indicates that every time the pound depreciates by one penny the U.K. authorities sell $80 millions of foreign exchange reserves. This is a similar order of magnitude to the results reported by other researchers for different time periods and currencies (see, for example, Longworth's (1980) study of the Canadian dollar and Quirk's (1977) study of the Japanese yen).…”

Section: The M O D~-lsupporting

confidence: 89%

Assets Markets, the Current Account and Exchange Rate Determination: An Empirical Model of the Sterling/Dollar Rate 1973–1983*

Kearney

MacDonald

1988

Australian Economic Papers

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“…The exchange rate between the Canadian and U.S dollars is thus of great interest and importance to Canada, and it is plausible that the rate is closely monitored, and possibly influenced, by the Bank of Canada. A number of attempts have been made to econometrically measure the nature and extent of the Bank of Canada's intervention in the foreign exchange market (for example, Longworth (1980), Weymark (1995), and Rogers and Siklos (2003)). According to the following quotation, taken from the Bank's website 2 and dated July 2001, it has in recent years refrained from such intervention:…”

Section: Intervention By the Bank Of Canadamentioning

confidence: 99%

“…3 Many authors use changes in foreign reserve holdings, possibly modified to account for changes in reserves due to factors other than intervention, as a measure of intervention. For studies in the Canadian context, see, for example, Dornbusch (1980), Longworth (1980), Weymark (1995, and Rogers and Siklos (2003). We use as our measure of intervention the log first difference in the Bank of Canada's official international reserves of U.S. dollars.…”

Section: Data and Measurement Of Variablesmentioning

confidence: 99%