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Official Intervention in the Foreign Exchange Market and the Random Walk Behavior of Exchange Rates

Author

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  • Homaifar, Ghassem A.

    (Middle Tennessee State University, Department of Economics and Finance)

  • Zietz , Joachim

    (Middle Tennessee State University, Department of Economics and Finance)

Abstract

Official intervention in the foreign exchange rate market can prevent the exchange rate from behaving as a random walk. Since central banks have routinely intervened in the foreign exchange market, empirical tests should reject the random walk hypothesis. A number of alternative statistical tests are employed to examine this hypothesis. The empirical results reveal that all but the Dickey-Fuller tests flatly reject the random walk hypothesis for all currencies tested. Given the low statistical power of the Dickey-Fuller tests, the empirical evidence points toward a rejection of the random walk hypothesis.

Suggested Citation

  • Homaifar, Ghassem A. & Zietz , Joachim, 1995. "Official Intervention in the Foreign Exchange Market and the Random Walk Behavior of Exchange Rates," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 48(3), pages 359-373.
    • Handle: RePEc:ris:ecoint:0393
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