Owen F. Humpage
() and Javiera Ragnartz
Owen F. Humpage: Research Department, Federal Reserve Bank of Cleveland, Postal: P.O. Box 6387 Cleveland, OH 44101-1387, USA
Javiera Ragnartz: Handelsbanken Asset Management, Postal: SE-106 70 Stockholm , Sweden
Abstract: Using a set of standard success criteria, we show that Riksbank foreign-exchange interventions between 1993 and 2002 lacked forecast value; that is, the observed number of successes was not significantly greater—and usually substantially smaller—than the number one would anticipate given the martingale nature of exchange-rate movements. Under some success criteria, the Riksbank exhibited negative forecast value, implying that the market could have profited by taking a position opposite that of the bank. Moreover, the likelihood of success was independent of such conditioning factors as the amount of a transaction, the time lapses between interventions, or the number of foreign currencies involved. As such, Riksbank intervention could not operate through an expectations or signaling channel.
40 pages, April 1, 2006
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