When do central banks prefer to intervene secretly?

✍ Scribed by Montserrat Ferré; Carolina Manzano

• Book ID: 102278267
• Publisher: John Wiley and Sons
• Year: 2009
• Tongue: English
• Weight: 172 KB
• Volume: 14
• Category: Article
• ISSN: 1076-9307
• DOI: 10.1002/ijfe.375

✦ Synopsis

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 degree of superior information held by the central bank will influence the decision to intervene secretly or publicly. Copyright © 2008 John Wiley & Sons, Ltd.