Impact of Central Bank Intervention on Exchange-Rate Forecast Heterogeneity

Beine, Michel A. R.; Bénassy-Quéré, Agnès; Dauchy, Estelle P.; MacDonald, Ronald

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Impact of Central Bank Intervention on Exchange-Rate Forecast Heterogeneity

CEPII Working Paper Series No. 02-05

45 Pages Posted: 10 Nov 2013

See all articles by Michel A. R. Beine

Michel A. R. Beine

University of Luxemburg; CESifo (Center for Economic Studies and Ifo Institute)

Agnès Bénassy-Quéré

Paris School of Economics (University Paris 1)

Ronald MacDonald

University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 5, 2002

Abstract

We investigate the impact of central bank intervention in the foreign exchange market on forecast heterogeneity. Market heterogeneity is based on a sample of forecasts made by a large number of commercial banks over two distinct periods for the DEM (or EUR) and the JPY against the USD. We show that, in general, forecast heterogeneity increases as a result of interventions, whether the interventions are unexpected (DEM-EUR) or expected (JPY). Our results also emphasise the role of rumours, especially in the YEN-USD market. In sum, official interventions are shown to move market opinions, albeit differently across the two markets.

Keywords: Central Bank Intervention; Foreign Exchange Markets; Survey Expectations; Market Micro-Structure

JEL Classification: F31, C42

Suggested Citation: Suggested Citation

Beine, Michel A. R. and Benassy-Quere, Agnes and Dauchy, Estelle P. and MacDonald, Ronald R., Impact of Central Bank Intervention on Exchange-Rate Forecast Heterogeneity (April 5, 2002). CEPII Working Paper Series No. 02-05, Available at SSRN: https://ssrn.com/abstract=2351380