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Foreign Exchange Interventions: The Long and the Short of It

Author

Listed:
  • Patrick Alexander
  • Sami Alpanda
  • Serdar Kabaca

Abstract

We provide empirical evidence of the causal effects of changes in financial intermediaries’ net worth on the aggregate economy. Our strategy identifies financial shocks as high-frequency changes in the market value of intermediaries’ net worth in a narrow window around their earnings announcements, based on US tick-by-tick data. Using these shocks, we estimate that news of a 1% decline in intermediaries’ net worth leads to a 0.2% to 0.4% decrease in the market value of nonfinancial firms. These effects are more pronounced for firms with high default risk and low liquidity and when the aggregate net worth of intermediaries is low.

Suggested Citation

  • Patrick Alexander & Sami Alpanda & Serdar Kabaca, 2022. "Foreign Exchange Interventions: The Long and the Short of It," Staff Working Papers 22-25, Bank of Canada.
    • Handle: RePEc:bca:bocawp:22-25
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    Keywords

    Business fluctuations and cycles; Exchange rate regimes; Exchange rates; Foreign reserves management; International financial markets; International topics;
    All these keywords.

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