The foreign exchange market interventions of the European Central Bank

Abstract

We analyze the effectiveness of the foreign exchange market interventions conducted by the European Central Bank (ECB) in the fall of 2000 to support the external stability of the euro. To this end, we discuss different channels through which interventions may influence exchange rate dynamics. We use the insights provided by the theoretical and empirical literature to evaluate the effectiveness of the intervention policy of the ECB. In addition, we present an empirical analysis in which we use intra-daily exchange rate data to examine in detail the effects of the interventions. We find that the interventions only had a rather short-term impact on the exchange rate path and had no effects beyond the short term. Therefore, our results suggest that the intervention policy of the ECB was not effective. JEL Codes: F31, E58, F33, F15, F02

Keywords

• Exchange Rates
• Foreign Exchange