IDEAS home Printed from https://ideas.repec.org/a/bla/germec/v5y2004i4p435-450.html
   My bibliography  Save this article

Spillover Dynamics of Central Bank Interventions

Author

Listed:
  • Frank H. Westerhoff
  • Cristian Wieland

Abstract

. Central banks frequently intervene in foreign exchange markets to reduce volatility or to correct misalignments. Such operations may be successful if they drive away destabilizing speculators. However, the speculators do not simply vanish but may reappear on other foreign exchange markets. Using a model in which traders are able to switch between foreign exchange markets, we demonstrate that while a central bank indeed has several means at hand to stabilize a specific market, the variability of the other markets depends on how the interventions are implemented.

Suggested Citation

  • Frank H. Westerhoff & Cristian Wieland, 2004. "Spillover Dynamics of Central Bank Interventions," German Economic Review, Verein für Socialpolitik, vol. 5(4), pages 435-450, November.
    • Handle: RePEc:bla:germec:v:5:y:2004:i:4:p:435-450
    DOI: 10.1111/j.1465-6485.2004.00116.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1465-6485.2004.00116.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1465-6485.2004.00116.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Day, Richard H. & Huang, Weihong, 1990. "Bulls, bears and market sheep," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 299-329, December.
    2. Anna J. Schwartz, 2000. "The Rise and Fall of Foreign Exchange Market Intervention," NBER Working Papers 7751, National Bureau of Economic Research, Inc.
    3. Westerhoff, Frank H., 2004. "Multiasset Market Dynamics," Macroeconomic Dynamics, Cambridge University Press, vol. 8(5), pages 596-616, November.
    4. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, vol. 83(May), pages 1-10.
    5. C. H. Hommes, 2001. "Financial markets as nonlinear adaptive evolutionary systems," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 149-167.
    6. LeBaron, Blake, 1999. "Technical trading rule profitability and foreign exchange intervention," Journal of International Economics, Elsevier, vol. 49(1), pages 125-143, October.
    7. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
    8. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
    9. R. Purdy, 2002. "Editorial," Climate Policy, Taylor & Francis Journals, vol. 2(1), pages 1-2, March.
    10. repec:rus:hseeco:21608 is not listed on IDEAS
    11. Lux, Thomas & Marchesi, Michele, 2002. "Journal of economic behavior and organization: special issue on heterogeneous interacting agents in financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 143-147, October.
    12. Paul Grauwe & Hans Dewachter, 1993. "A chaotic model of the exchange rate: The role of fundamentalists and chartists," Open Economies Review, Springer, vol. 4(4), pages 351-379, December.
    13. Chiarella, Carl & Dieci, Roberto & Gardini, Laura, 2002. "Speculative behaviour and complex asset price dynamics: a global analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 173-197, October.
    14. Farmer, J. Doyne & Joshi, Shareen, 2002. "The price dynamics of common trading strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 49(2), pages 149-171, October.
    15. Brock, William A. & Hommes, Cars H., 1998. "Heterogeneous beliefs and routes to chaos in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1235-1274, August.
    16. Cristian Wieland, 2002. "Controlling Chaos in Higher Dimensional Maps," Computing in Economics and Finance 2002 232, Society for Computational Economics.
    17. Hung, Juann H, 1997. "Intervention strategies and exchange rate volatility: a noise trading perspective," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 779-793, September.
    18. R. K. Pachauri & Sujata Gupta, 2002. "Editorial," Climate Policy, Taylor & Francis Journals, vol. 2(2-3), pages 127-128, September.
    19. Anna Schwartz, 2000. "The Rise and Fall of Foreign Exchange Market Intervention as a Policy Tool," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(2), pages 319-339, December.
    20. Saacke, Peter, 2002. "Technical analysis and the effectiveness of central bank intervention," Journal of International Money and Finance, Elsevier, vol. 21(4), pages 459-479, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Westerhoff Frank H., 2008. "The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(2-3), pages 195-227, April.
    2. Antonio Doria, Francisco, 2011. "J.B. Rosser Jr. , Handbook of Research on Complexity, Edward Elgar, Cheltenham, UK--Northampton, MA, USA (2009) 436 + viii pp., index, ISBN 978 1 84542 089 5 (cased)," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 196-204, April.
    3. Frank H. Westerhoff, 2009. "Exchange Rate Dynamics: A Nonlinear Survey," Chapters, in: J. Barkley Rosser Jr. (ed.), Handbook of Research on Complexity, chapter 11, Edward Elgar Publishing.
    4. Gardini, Laura & Radi, Davide & Schmitt, Noemi & Sushko, Iryna & Westerhoff, Frank, 2022. "Currency manipulation and currency wars: Analyzing the dynamics of competitive central bank interventions," Journal of Economic Dynamics and Control, Elsevier, vol. 145(C).
    5. Troy Tassier, 2013. "Handbook of Research on Complexity, by J. Barkley Rosser, Jr. and Edward Elgar," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 132-133.
    6. Demary, Markus, 2010. "Transaction taxes and traders with heterogeneous investment horizons in an agent-based financial market model," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-44.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wieland, Cristian & Westerhoff, Frank H., 2005. "Exchange rate dynamics, central bank interventions and chaos control methods," Journal of Economic Behavior & Organization, Elsevier, vol. 58(1), pages 117-132, September.
    2. Westerhoff Frank H., 2008. "The Use of Agent-Based Financial Market Models to Test the Effectiveness of Regulatory Policies," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(2-3), pages 195-227, April.
    3. S. Reitz & F. Westerhoff & C. Wieland, 2006. "Target Zone Interventions and Coordination of Expectations," Journal of Optimization Theory and Applications, Springer, vol. 128(2), pages 453-467, February.
    4. Frank H. Westerhoff, 2009. "Exchange Rate Dynamics: A Nonlinear Survey," Chapters, in: J. Barkley Rosser Jr. (ed.), Handbook of Research on Complexity, chapter 11, Edward Elgar Publishing.
    5. Troy Tassier, 2013. "Handbook of Research on Complexity, by J. Barkley Rosser, Jr. and Edward Elgar," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 132-133.
    6. Stefan Reitz, 2005. "Central Bank Intervention and Heterogeneous Exchange Rate Expectations: Evidence from the Daily DEM/US-Dollar Exchange Rate," Open Economies Review, Springer, vol. 16(1), pages 33-50, January.
    7. Antonio Doria, Francisco, 2011. "J.B. Rosser Jr. , Handbook of Research on Complexity, Edward Elgar, Cheltenham, UK--Northampton, MA, USA (2009) 436 + viii pp., index, ISBN 978 1 84542 089 5 (cased)," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 196-204, April.
    8. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186, Elsevier.
    9. Disyatat, Piti & Galati, Gabriele, 2007. "The effectiveness of foreign exchange intervention in emerging market countries: Evidence from the Czech koruna," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 383-402, April.
    10. He, Xue-Zhong & Li, Youwei, 2007. "Power-law behaviour, heterogeneity, and trend chasing," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3396-3426, October.
    11. Hommes, C.H., 2005. "Heterogeneous Agent Models in Economics and Finance, In: Handbook of Computational Economics II: Agent-Based Computational Economics, edited by Leigh Tesfatsion and Ken Judd , Elsevier, Amsterdam 2006," CeNDEF Working Papers 05-03, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    12. Reitz, Stefan & Taylor, Mark P., 2008. "The coordination channel of foreign exchange intervention: A nonlinear microstructural analysis," European Economic Review, Elsevier, vol. 52(1), pages 55-76, January.
    13. Schmidt, Robert & Wollmershäuser, Timo, 2004. "Sterilized Foreign Exchange Market Interventions in a Chartist-Fundamentalist Exchange Rate Model," W.E.P. - Würzburg Economic Papers 50, University of Würzburg, Department of Economics.
    14. Stefan Reitz & M.P Taylor, 2006. "The Coordination Channel of Foreign Exchange Intervention," Computing in Economics and Finance 2006 16, Society for Computational Economics.
    15. Westerhoff, Frank H. & Dieci, Roberto, 2006. "The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 293-322, February.
    16. Chiarella, Carl & Dieci, Roberto & He, Xue-Zhong, 2007. "Heterogeneous expectations and speculative behavior in a dynamic multi-asset framework," Journal of Economic Behavior & Organization, Elsevier, vol. 62(3), pages 408-427, March.
    17. Hommes, Cars & Huang, Hai & Wang, Duo, 2005. "A robust rational route to randomness in a simple asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 29(6), pages 1043-1072, June.
    18. Youwei Li & Xue-Zhong He, 2005. "Long Memory, Heterogeneity, and Trend Chasing," Computing in Economics and Finance 2005 113, Society for Computational Economics.
    19. Dieci, Roberto & Foroni, Ilaria & Gardini, Laura & He, Xue-Zhong, 2006. "Market mood, adaptive beliefs and asset price dynamics," Chaos, Solitons & Fractals, Elsevier, vol. 29(3), pages 520-534.
    20. Schmitt, Noemi & Westerhoff, Frank, 2014. "Speculative behavior and the dynamics of interacting stock markets," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 262-288.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:germec:v:5:y:2004:i:4:p:435-450. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/vfsocea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.