The Impact of FX Central Bank Intervention in a Noise Trading Framework [chapter]

Michel Beine, Paul De Grauwe, Marianna Grimaldi
2014 World Scientific Studies in International Economics  
In this paper, we investigate the effects of central bank interventions (CBI) in a noise trading model with chartists and fundamentalists. We first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a fundamental value. Then, we investigate the role of central bank interventions for explaining the switching properties between the two types of agents. We find evidence that in the medium run,
more » ... um run, interventions increase the proportion of fundamentalists and therefore exert some stabilzing influence on the exchange rate. * We would like to thank A. Bénassy for transmitting the exchange rate misalignment data used in this paper.
doi:10.1142/9789814513197_0006 fatcat:byapf2aybffztfhkc336gnwdja