Traditionally, central banks have used direct intervention in currency markets when the exchange rate has moved away from equilibrium or when the volatility has been excessive and the literature on the effects of indirect intervention is sparse. We examine whether indirect intervention has any impact on the exchange rate levels by examining the central bank verbal communications in Australia and Canada. We find evidence that the Bank of Canada's (BOC's) speeches reduce the mean exchange rate returns but not the Reserve Bank of Australia's (RBA's) speeches. Our results show that the socio-economic similarities between countries do not guarantee a similar impact of indirect intervention.
|Journal||Review of Pacific Basin Financial Markets and Policies|
|Publication status||Published - 1 Mar 2018|
- Central bank speeches
- event study
- high frequency data
- indirect intervention
- non-parametric tests