Foreign Exchange Market Intervention: Market Microstructure Models and Empirical Investigations

Foreign Exchange  Market Intervention
Foreign Exchange  Market Intervention
Contents
Preface
Acknowledgments
Chapter 1
Introduction
	1.1. Market Microstructure and Foreign Exchange Intervention
	1.2. Contributions of the Book
	1.3. Organization of the Book
	1.4. Empirical Results, Implications  and Findings
Chapter 2
Foreign Exchange Intervention
	2.1. The Foreign Exchange Market
	2.2. Foreign Exchange Intervention
		2.2.1. Type of Government Intervention
		2.2.2. The Theory of Foreign Exchange Intervention
			2.2.2.1. Purchasing Power Parity
			2.2.2.2. The Mundell-Fleming Model
			2.2.2.3. The Flexible-Price Monetary Model
			2.2.2.4. The Sticky-Price Monetary Model
			2.2.2.5. The Portfolio Balance Model
			2.2.2.6. Stock-Flow Interaction in Portfolio Models of the
			Exchange Rate
		2.2.3. The Objective of Government Intervention
		2.2.4. Unilateral and Coordinated Central Bank Intervention
			2.2.4.1. Bretton Woods Era
			2.2.4.2. September 1971 - 1974
			2.2.4.3. October 1974 - 1981
			2.2.4.4. 1981 - 1987
			2.2.4.5. 1988 - 1994
	2.3. Price Expectation
	2.4. Inventory Models
	2.5. The Impact of the Intervention on the Inventory-Control Mechanism
Chapter 3
The Impact of Intervention on the Inventory-Control Mechanism
	3.1. Sources of Data
	3.2. The Empirical Analysis
		3.2.1. Dummy Variable
		3.2.2. Size of Intervention Variable
	3.3. The Events of Intervention  from 1985 to 1987
		3.3.1. Pre-Plaza Agreement
		3.3.2. Louvre Accord
	Conclusion
Chapter 4
The Bid-Ask Spread: The Market Microstructure Perspective
	4.1. Concepts
	4.2. The Components of the Bid-Ask Spread
	4.3. Factors That Influence the Bid-Ask Spread
	4.4. The Volatility of Exchange Rates
	4.5. Price Changes Due to the Spread
Chapter 5
The Empirical Decomposition of the Bid-Ask Spread for Exchange Rates
	5.1. Sources of Data
	5.2. The Empirical Procedure
	5.3. Results
	5.4. The Components of the Bid-Ask Spread
	5.5. Reverse Tick Test as an Alternative  to Transaction Prices
		5.5.1. The Empirical Procedure
		5.5.2. Results
	5.6. Huang and Stoll’s General Approach for the Components of the Bid-Ask Spread
		5.6.1. The Model
		5.6.2. The Empirical Procedure
		5.6.3. The Results
Chapter 6
Government Intervention  on the Spread
	6.1. Stationarity Testing
	6.2. Dummy Variable
	6.3. Size of Intervention Variable
	6.4. Event Study
	Conclusion
Chapter 7
Findings: Foreign Exchange Intervention Effectiveness
	7.1. Foreign Exchange Intervention Issues
	7.2. The Empirical Results and the Implications for Intervention
	7.3. Major Contributions of Book
Appendices
	Appendix 1. Derivation of Serial Covariances (Stoll, 1989)
	Appendix 2. Sterilized and Nonsterilized Intervention (Humpage, 1989)
	Appendix 3. Decomposition of Determinants  of Bid-Ask Spread: the Assumptions  Underlying the Method of Least Squares
		Linearity
			All Dealers
			Asia
			Europe
		Equality of Variance (Homoscedasticity)
			All Dealers
			Asia
			Europe
		Independence of Error
			All Dealers
			Asia
			Europe
		Normality
			All Dealers
			Asia
			Europe
	Appendix 4. Calculation of Price Reversal ((), Inventory Holding Cost ((), and Adverse Selection Cost (()
	Appendix 5. GMM Results for Banks Located in London, New York, and Hongkong
	Appendix 6. Zivot and Andrew’s Unit Roots  Test Result
	Appendix 7. Event Study
References
About the Authors
Index
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