The Dynamic Impact of FX Interventions on Financial Markets

Discussion Papers 1854, 62 S.

Lukas Menkhoff, Malte Rieth, Tobias Stöhr


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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.

Tobias Heidland

Wissenschaftlicher Mitarbeiter in der Abteilung Weltwirtschaft

Lukas Menkhoff

Abteilungsleiter in der Abteilung Weltwirtschaft

Malte Rieth

Wissenschaftlicher Mitarbeiter in der Abteilung Makroökonomie

Themen: Geldpolitik

JEL-Classification: F31;F33;E58
Keywords: Foreign exchange intervention, structural VAR, exchange rates, interest rates, stock prices