This study provides evidence supporting the effectiveness of sterilised foreign exchange market intervention by central banks using an event study approach. An event study framework is better suited to the study of sporadic and intense periods of official intervention, juxtaposed with continuously changing exchange rates, than standard time-series studies. Focusing on daily Bundesbank and US official intervention operations, we identify separate intervention 'episodes' and analyse the subsequent effect on the exchange rate. Using the non-parametric sign test and matched-sample test, we find strong evidence that sterilised intervention systemically affects the exchange rate in the short run. This result is robust to changes in event window definitions over the short run and to controlling for central bank interest rate changes during events.

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Japanese official intervention in the foreign exchange market is of by far the largest magnitude in the world, despite little or no evidence that it is effective in moving exchange rates. Up until recently, however, official data on intervention has not been available for Japan. This paper investigates the effectiveness of intervention using recently published official daily data and an event study methodology. The event study better fits the stochastic properties of intervention and exchange rate data, i.e. intense and sporadic bursts of intervention activity juxtaposed against a yen/dollar rate continuously changing, than standard time-series approaches. Focusing on daily Japanese and US official intervention operations, we identify separate intervention "episodes" and analyze the subsequent effect on the exchange rate. Using the non-parametric sign test and matched-sample test, we find strong evidence that sterilized intervention systemically affects the exchange rate in the short-run (less than one month). This result holds even when intervention is not associated with (simultaneous) interest rate changes, whether or not intervention is "secret" (in the sense of no official reports or rumors of intervention reported over the newswires), and against other robustness checks. Large-scale (amounts over $1 billion) intervention, coordinated with the Bank of Japan and the Federal Reserve working in unison, give the highest success rate. During the period that the Bank of Japan has reduced interbank rates to 0.5 percent and below (from September 1995), however, only one intervention operation has been coordinated with the Fed and the success rate has been correspondingly low.JEL Classification: F31, F33, F42, G15 2 3 IntroductionThe effectiveness of sterilized foreign exchange intervention has been the focus of an ongoing and unresolved controversy since the Jurgensen report was published by G-10 central banks almost twenty years ago (Jurgensen, 1983)). In theory, sterilized intervention may be effective, working through portfolio balance, signaling and noise trading channels. However, empirical support for the effectiveness of intervention, usually based on Bundesbank and Fed intervention, is mixed (see Dominguez and Frankel, 1993, andSarno andTaylor, 2001, for a recent survey of the literature). Nonetheless, policy makers-judging from their actions--view sterilized intervention as an instrument for policy. Reviewing the empirical evidence, Obstfeld and Rogoff (1996) conclude: "In any event, governments plainly believe that sterilized intervention has its uses, for they continue to practice it despite the lack of any hard evidence that it is consistently and predictably effective" (p. 595).Empirical studies to date, however, have not analyzed Japanese official intervention data since the Ministry of Finance (MoF) did not make this publicly available until July 2001. TheMoF now discloses, with a 1-3 month delay, the day of intervention, the amount of yen intervention (bought and sold by its agent, the Bank ...

Using a unique intervention "news" data set, this paper investigates the impact of ECB intervention and intervention-related "news" (newswire reports) on the euro exchange rate. A time-series study of "news" generated by ECB officials and market participants regarding intervention and the value of the euro as well as an event study of firm reports of ECB intervention is conducted. Both studies find significant short-run effects on the euro value, while only "negative" statements (official statements denying past intervention or ruling out future intervention) appear to have persistent effects.

The impact of news surprises on exchange rates depends in principle upon a number of factors including the state of the economy, institutional setting and nature of the expected policy response. These characteristics may lead to state-contingent asymmetric responses to news. In this paper we investigate the possible asymmetric response of intraday exchange rates (5-minute intraday JPY/USD) to macroeconomic news announcements during a very unusual period-Japan during 1999-2006 when the money market interest rate was effectively zero. We may think of this period as a "natural experiment" consisting of an institutional setting when interest rates may rise but not decline, thereby constraining both endogenous policy reactions to news and private market expectations. Asymmetric responses to news, to the extent that they are important in exchange rate markets as they are in equity markets, would seem particularly likely to be evident during this period. We consider several ways asymmetric responses may be manifested and linked to macroeconomic news during the zero-interest rate period. We assess whether the intraday exchange rate responds differently depending on whether the news is emanating from Japan or the U.S; we consider the state of the business cycle; and we distinguish between "good" and "bad" news.