Central Bank Interventions in the Light of Survey Results

Abstract

This paper displays findings from a survey on central banks FOREX interventions practices during the last decade. The study of responding monetary authorities answers, in the light of available data and literature on foreign exchange interventions, enables us to characterize interventions. Interventions usually take place during normal working hours and central banks show some preference for dealing with major domestic banks. The first motive given for intervention by central banks is to correct or prevent long-run misalignments of exchange rates from their fundamental values and, to a lesser extent, to reduce exchange rate volatility. The signalling effect of interventions is consistently put forward by central banks as the main channel through which their interventions work. As of the effectiveness of interventions, responding central banks answered that it strongly relies on the central bank credibility and is positively linked with a consistent communication policy and experience of successful interventions. Overall the results of this survey are consistent with the available data on FX interventions and with the empirical literature.