Blowing Against the Wind? A Narrative Approach to Central Bank Foreign Exchange Intervention

46 Pages Posted: 15 Nov 2019 Last revised: 12 Jun 2020

See all articles by Alain Naef

Alain Naef

University of California, Berkeley - Department of Economics

Date Written: June 11, 2020

Abstract

Few studies on foreign exchange intervention convincingly address the causal effect of intervention on exchange rates. By using a narrative approach, I address a major issue in the literature: the endogeneity of intraday news which influence the exchange rate alongside central bank operations. Some studies find that interventions work in up to 80% of cases. Yet, by accounting for intraday market moving news, I find that in adverse conditions, the Bank of England managed to influence the exchange rate only in 8% of cases. I use both machine learning and human assessment to confirm the validity of the narrative approach.

Keywords: intervention, foreign exchange, natural language processing, central bank, Bank of England

JEL Classification: F31, E5, N14, N24

Suggested Citation

Naef, Alain, Blowing Against the Wind? A Narrative Approach to Central Bank Foreign Exchange Intervention (June 11, 2020). Available at SSRN: https://ssrn.com/abstract=3483895 or http://dx.doi.org/10.2139/ssrn.3483895

Alain Naef (Contact Author)

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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