Discussion Papers 1854, 62 S.
Lukas Menkhoff, Malte Rieth, Tobias Stöhr
2020
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Published in : ¬The¬ Review of Economics and Statistics 103 (2021), 5, S. 939–953
Evidence on the effectiveness of FX interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Generally, we find, for freely floating currencies, that FX intervention shocks significantly affect exchange rates and that this impact persists for months. The signaling channel dominates the portfolio channel. Moreover, interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.
Topics: Monetary policy, Financial markets
JEL-Classification: F31;F33;E58
Keywords: Foreign exchange intervention, structural VAR, exchange rates, interest rates, stock prices
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/218975