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Working Paper

Dollar Intervention and the Deutschemark-Dollar Exchange Rate: A Daily Time-Series Model

This paper develops a simultaneous time-series model to investigate the daily interactions between official exchange-market intervention and movements in the deutsche mark-dollar exchange rate, from November 2, 1978, to October 31, 1979. The model is constructed using both morning-opening and afternoon-closing exchange-rate quotes, Using these two quotes, and making assumptions about the timing of intervention relative to the exchange-rate quotes, enables us to measure the causal relationships among contemporaneous variables, the results suggest that, over the period investigated, the Federal Reserve responded to exchange-rate movements in a manner consistent with a leaning-against-the-wind strategy, but that this intervention tended to accentuate slightly movements in the rate. This result seems to support claims that traders recognized intervention and traded against it.

Suggested Citation

Humpage, Owen F. 1984. “Dollar Intervention and the Deutschemark-Dollar Exchange Rate: A Daily Time-Series Model.” Federal Reserve Bank of Cleveland, Working Paper No. 84-04. https://doi.org/10.26509/frbc-wp-201130r3