New examinations about the impact of foreign exchange interventions

Current Project


International Economics

Project Management

Lukas Menkhoff

Project Period

January 1, 2018 - December 31, 2020

Commissioned by

Deutsche Forschungsgemeinschaft (DFG)

Research about foreign exchange interventions has received renewed attention during the last years. This becomes most visible in various recent studies by the International Monetary Fund (IMF) which assess foreign exchange interventions quite favorably.While the interest in the subject has increased, available data are still insufficient. Empirical studies in this field are basically a collection of case studies with decreasing marginal insights. It remain unclear which of these results could be generalized and which specific circumstances might be potentially crucial for the intervention success. Practically speaking, the case-specific insights can hardly be integrated into macro-economic analyses.The study by Fratzscher et al. (2017) contributes to closing this gap by examining a panel dataset of up to 33 central banks over up to 17 years which opens a new dimension of analysis. It is our ambition to to use this dataset for further analyses in order to put forward the examination of foreign exchange interventions. This general objective is detailed into four specific objectives:First, it is planed to analyze the impact of interventions and capital controls jointly in a large country panel, because both instruments are jointly used in practice but have not been systematically analyzed in a combined framework so far.Second, a large dataset on monthly interventions will be compiled and made public for research purposes. This is intended to fill the mentioned gap in useful intervention data.Third, we analyze the interplay of interventions and risk premia in foreign exchange markets (primarily regarding carry trades) as it is unclear whether interventions may have the unintended effect of reducing riskiness of (potentially undesired) speculation by stabilizing markets.Fourth, we aim for improving the impact measurement that foreign exchange interventions may have on financial and macroeconomic variables. We contribute by referring to new estimation techniques and by using a larger group of countries.

DIW Team