Analyses about communication and use of foreign exchange interventions
Final Report Abstract
Foreign exchange interventions (FXI), i.e. purchases and sales of foreign currency by the central bank, are a widespread economic policy instrument, especially in emerging economies, to influence their own exchange rate. The exchange rate is a central price in open economies, whose change can facilitate exports, possibly attract capital flows or make the domestic price level more expensive. In principle, it can be influenced by FXI, but foreign exchange markets are large and private transactions can also occur in the opposite direction. Our studies show that FXI can influence the exchange rate in the cases under consideration to such an extent that this also affects the real economy. Induced devaluations lead to more output by facilitating exports. This effect of FXI is comparable to the effect of monetary policy stimuli. We also show how FXI are prepared by institutional decisions, in which thematic environments they take place, that they are usually positively correlated with other instruments of foreign economic policy (such as capital controls) and that FXI influence risk premiums on foreign exchange markets.
Publications
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Systematic Intervention and Currency Risk Premia. SSRN Electronic Journal.
Fratzscher, Marcel; Menkhoff, Lukas; Sarno, Lucio; Schmeling, Maik & Stoehr, Tobias
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The Dynamic Impact of FX Interventions on Financial Markets. The Review of Economics and Statistics, 103(5), 939-953.
Menkhoff, Lukas; Rieth, Malte & Stöhr, Tobias
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Foreign Exchange Intervention: A New Database. IMF Economic Review, 71(4), 852-884.
Fratzscher, Marcel; Heidland, Tobias; Menkhoff, Lukas; Sarno, Lucio & Schmeling, Maik
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Zunehmende Bereitschaft für Devisenmarktinterventionen zeigt Wandel der internationalen Finanzarchitektur. DIW Wochenbericht, 91:26, 407-412
Menkhoff, Lukas
