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We study the effects of sterilised intervention operations executed on behalf of the Swiss National Bank (SNB) using tick-by-tick transactions data between 1986 and 1995. We extend the preliminary analysis of Fischer and Zurlinden (1999) by matching these data with indicative intra-day exchange rate quotes and news-wire reports of central bank activity. Using an event study approach we find that intervention has important short-run effects on exchange rate returns. In particular, among various results, we find that i) intervention has a stronger impact when the SNB moves with-the-market and when its activity is concerted with that of other central banks and ii) exchange rate returns move in the 15 minute interval prior to interventions. JEL Nos.: F31,G14,G15.

We propose a simple structural model of exchange rate determination which draws from the analytical framework recently proposed by Bacchetta and van Wincoop (2005) and allows us to disentangle the portfolio-balance and information effects of order flow on exchange rates. We estimate this model employing an innovative transaction data-set that covers all indirect foreign exchange transactions completed in the USD/EUR market via EBS and Reuters between August 2000 and January 2001. Our results indicate that the strong contemporaneous correlation between order flow and exchange rates is largely due to portfolio-balance effects. This result also appears to carry through to the four FX intervention events that appear in our sample. JEL Nos.: D82, G14 and G15. Keywords: Order Flow, Foreign Exchange Micro Structure, Exchange Rate Dynamics.In the past few years students of exchange rate economics have turned their attention to the analysis of transaction data in foreign exchange (FX) markets. Until the late 1990s no detailed data on foreign exchange transactions were available to researchers and it was not possible to conduct any empirical study of micro-structure aspects of FX markets with detailed information on the trading activity of their participants. More recently, however, improved data capture by trading platforms and data vendors has given researchers and practitioners access to detailed information on individual transactions between FX traders.As well as improved data availability, the recent interest in the analysis of transaction data in FX markets stems from a two-fold argument. On the one hand, the abysmal results of the empirical investigation of the models of exchange rate determination developed in the 1970s questions the validity of the traditional asset market approach. In fact, plenty of empirical evidence shows how asset market models of exchange rate determination completely fail to explain exchange rate movements in the short-run and can only indicate long-run trends. 1On the other hand, the understanding that the organization and regulation of trading activity in financial markets has important implications for the process of price formation has suggested to the international finance community that the analysis of the micro-structure of FX markets may guide exchange rate economics out of the "foggy swamp" it has been mired in for the past twenty or more years. It has been claimed that the empirical failure of the asset market approach lies with the particular forward looking nature of the exchange rate and with the impact that news on exchange rate fundamentals, such as interest rates, employment levels and so on, have on the value of currencies. When news arrivals condition market expectations of future values of these fundamental variables, exchange rates immediately react anticipating the effect of these fundamental shifts. Since news is hard to observe, it is difficult to control for news effects in the empirical investigation of exchange rate dynamics and hence it is hard to conduct...

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