Are all Central Bank interventions created equal? An empirical investigation

Abstract

This study investigates the relationship between Central Bank interventions and technical trading rule profitability in the spot foreign exchange market. Because interventions are not necessarily exogenous events, we analyze the relationships between interventions by the G-3 Central Banks, financial market conditions, changes in monetary policy and technical trading profitability. By considering announced, unannounced, unilateral and coordinated interventions separately, we provide more insight into the interrelationships between these factors than previous studies. We find that the level of technical trading profits and market uncertainty increase preceding and remain high during interventions, especially announced and coordinated, but decrease afterward. A preliminary investigation of the possible role of a time-varying risk premium around interventions cannot be rejected.