2008
DOI: 10.1002/ijfe.375
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When do central banks prefer to intervene secretly?

Abstract: Central banks often intervene secretly in the foreign exchange market. This secrecy seems to be at odds with the signalling channel. In this article we will analyse when a central bank intervening in the foreign exchange rate market purely through the signalling channel would prefer to act secretly or publicly. By using a microstructure model, we will show that the consistency of the intervention with fundamentals, the volume of noise trading, the weight given to the effectiveness of intervention and the degre… Show more

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Cited by 2 publications
(4 citation statements)
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“…There is one distinct difference between the microstructure framework of Vitale (1999) and Ferré and Manzano (2009) and the rational expectations macroeconomic model of this article. In the former, the total market order is the sum of orders from the central bank and noise traders, respectively, and has no influence on the fundamental exchange rate.…”
Section: An Environment Of An Official Intervention With Asymmetmentioning
confidence: 99%
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“…There is one distinct difference between the microstructure framework of Vitale (1999) and Ferré and Manzano (2009) and the rational expectations macroeconomic model of this article. In the former, the total market order is the sum of orders from the central bank and noise traders, respectively, and has no influence on the fundamental exchange rate.…”
Section: An Environment Of An Official Intervention With Asymmetmentioning
confidence: 99%
“…Ferré and Manzano (2009) extend Vitale's (1999) framework by adding a fundamental exchange rate target. They show that if the intervention is consistent with the fundamentals (where the variance of the non‐fundamental part of the target is zero), secrecy will provide a higher expected profit, so that the central banks' profitability motivation can offer a rationale for their secret intervention 13 .…”
Section: Literature Review On Intervention and Its Secrecymentioning
confidence: 99%
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