The interdealer market and the central bank intervention

• Author(s): Albuquerque, Paula
• Date: 2005
• Persistent ID: http://hdl.handle.net/10400.5/2678
• Origin: Repositório da UTL
• Subject(s): foreign exchange market; interdealer market; central bank intervention; information; market microstructure
• Document Type: Other
• Language: English

Description

This paper studies the consequences of having either an interventionist or a non-interventionist central bank in the foreign exchange market, in a market microstructure framework. Although a simple one-period model is used, it allows the characterization of the effect of the central bank intervention on the behaviour of dealers. The model also identifies the conditions for the dealer that acts as the counterpart of the central bank to be better or worse than the other dealers. The price is expected to be more informative with an interventionist central bank.