| By: |
Jun, Jongbyung (Suffolk University, Department of Economics) |
| Abstract: |
The noise-trading or coordination channel hypothesis implies that sterilized
intervention in the foreign exchange market is effective if certain conditions
are satisfied, but ineffective otherwise. The hypothesis is tested with a
three-regime threshold model and daily data on actual intervention by US and
German central banks. The main finding is that if central banks choose the
optimal timing in light of the trend-chasing behaviors of noise traders, such
strategic intervention is effective in moving the exchange rate in the desired
direction. |
| Keywords: |
Central bank intervention; Threshold model; Coordination channel |
| JEL: |
C22 E58 F31 |
| Date: |
2008–01–15 |
| URL: |
http://d.repec.org/n?u=RePEc:suf:wpaper:2008-1&r=mst |