Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
964431 | Journal of International Money and Finance | 2006 | 22 Pages |
Exchange rate communication has come to play an increasingly important role as a policy tool for monetary authorities over the past decade. The paper assesses the strategies and the long-term effectiveness of communication as well as actual interventions. The empirical results for the G3 economies indicate that communication has not only exhibited a significant contemporaneous effect on exchange rates, but also has moved forward exchange rates up to a horizon of 6 months in the desired direction. Moreover, communication is found to reduce exchange rate volatility and uncertainty whereas actual interventions tend to raise it. Overall this underlines a key difference between these two policy tools and suggests that communication tends to be a fairly effective policy tool over the medium-term.