Introduction -- The foreign exchange intervention -- The bid-ask spread: the market microstructure perspective -- The empirical decomposition of the bid-ask spread for exchange rates -- Government intervention on the spread -- References -- Appendices.

This paper describes and analyzes the implementation of a crawling exchange rate band on an electronic trading platform. The placement of limit orders at the central bank's target rate serves as a credible policy statement that may coordinate beliefs of market participants. We find for our...