Post-Plaza Intervention in the Dem/Usd Exchange Rate

This paper analyzes whether specific methods of conducting central bank interventions increase the likelihood of achieving its objectives. Using daily Bundesbank and Fed intervention data covering the entire post-Plaza period, the issue is addressed by estimating binary choice models over the sample of observations when at least one of the two central banks were intervening. The results suggest that central banks can in fact improve the likelihood of success primarily through coordination and, interestingly, that unilateral intervention conducted by the Bundesbank appears to have been destabilizing. Furthermore, the paper finds that relatively infrequent intervention has a higher likelihood of success. The findings seem consistent with an "information signaling channel hypothesis" and thus the idea that, during certain periods of time, central banks may possess private information on fundamentals and the target value of a foreign currency