When Do Central Bank Interventions Influence Intra-Daily and Longer-Term Exchange Rate Movements?

This paper examines dollar interventions by the G3 since 1989, and the reasons that trader reactions to these interventions might differ over time and across central banks. Market microstructure theory provides a framework for understanding the process by which sterilized central bank interventions are observed and interpreted by traders, and how this process in turn, might influence exchange rates. Using intra-daily and daily exchange-rate and intervention data, the paper analyzes the influence of interventions on exchange-rate volatility, finding evidence of both within day and daily impact effects, but little evidence that interventions influence longer term volatility.central bank intervention, exchange rate volatility, market-microstructure

The Influence of Actual and Unrequited Interventions

Intervention operations are used by governments to manage their exchange rates but officials rarely confirm their presence in the market, leading inevitably to erroneous reports in the financial press. There are also reports of what we term, unrequited interventions, interventions that the market expects but do not materialize. In this paper we examine the effects of various types of intervention news on intra-day exchange rate behavior. We find that unrequited interventions have a statistically significant influence on returns, volatility and order flow, suggesting that the expectation of intervention, even when governments do not intervene, can affect currency values.

International Reserves and Underdeveloped Capital Markets

International reserve accumulation by developing countries is just one example of the puzzling behavior of international capital flows. Capital should flow to where its return is highest, which ought to be where capital is scare. Yet recent data suggest the opposite – net capital flows from developing countries to industrialized countries. This paper examines the role of financial market development in the accumulation of international reserves. In countries with underdeveloped capital markets the government’s accumulation of reserves may substitute for what would otherwise be private sector capital outflows. Effectively, these governments are acting as financial intermediaries, channeling domestic savings away from local uses and into international capital markets, thereby offsetting the effects of domestic financial constraints that lead to excessive private sector exposure to potential capital shortfalls.http://deepblue.lib.umich.edu/bitstream/2027.42/76031/1/ipc-92-dominguez-international-reserves-underdeveloped-capital-markets.pd

What Defines "News" in Foreign Exchange Markets?

This paper examines whether the traditional sets of macro surprises, that most of the literature considers, are the only sorts of news that can explain exchange rate movements. We examine the intra-daily influence of a broad set of news reports, including variables which are not typically considered “fundamentals” in the context of standard models of exchange rate determination, and ask whether they too help predict exchange rate behavior. We also examine whether “news” not only impacts exchange rates directly, but also influences exchange rates via order flow (signed trade volume). Our results indicate that along with the standard fundamentals, both non-fundamental news and order flow matter, suggesting that future models of exchange rate determination ought to include all three types of explanatory variables.http://deepblue.lib.umich.edu/bitstream/2027.42/21611/1/IPC-working-paper-002-dominguez.pd

Foreign Ownership and Corporate Restructuring: Direct Investment by Emerging-Market Firms in the United States

This paper examines the recent upsurge in foreign direct investment by emerging-market firms into the United States. Traditionally, direct investment flowed from developed to developing countries, bringing with it superior technology, organizational capital, and access to international capital markets, yet increasingly there is a trend towards “capital flowing uphill” with emerging market investors acquiring a broad range of assets in developed countries. Using transaction-specific information and firm-level accounting data we evaluate the operating performance of publicly traded U.S. firms that have been acquired by firms from emerging markets over the period 1980-2007. Our empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of non-acquired firms. The results suggest that emerging country acquirers tend to choose U.S. targets that are larger in size (measured as sales, total assets and employment), relative to matched non-acquired U.S. firms before the acquisition year. In the years following the acquisition, sales and employment decline while profitability rises, suggesting significant restructuring of the target firms.http://deepblue.lib.umich.edu/bitstream/2027.42/76032/1/ipc-93-chari-chen-dominguez-foreign-ownership-corporate-restructuring.pd

Does Foreign Exchange Reserve Decumulation Lead to Currency Appreciation?

Many developing countries have increased their foreign reserve stocks dramatically in recent years, in large part motivated by the desire for precautionary self-insurance. One of the negative consequences of large accumulations for these countries is the risk of valuation losses. In this paper we examine the implications of systematic reserve decumulation by the Czech authorities aimed at mitigating valuation losses on euro-denominated assets. The policy was explicitly not intended to influence the value of the koruna relative to the euro. Initially the timing and size of reserve sales was not predictable, eventually sales occurred on a daily basis (in three equal installments within the day). This project examines whether these reserve sales, both during the regime of discretionary timing as well as when sales occurred every day, had unintended consequences for the domestic currency. Our findings using intraday exchange rate data and time-stamped reserve sales indicate that when decumulation occurred every day these sales led to significant appreciation of the koruna. Overall, our results suggest that the manner in which reserve sales are carried out matters for whether reserve decumulation influences the relative value of the domestic currency.http://deepblue.lib.umich.edu/bitstream/2027.42/77402/1/ipc-94-dominguez-fatum-vacek-foreign-exchange-reserve-decumulation-currency-appreciation.pd

Cross-Border Trading as a Mechanism for Capital Flight: ADRs and the Argentine Crisis

This paper examines the surprising performance of the Argentine stock market in the midst of the country’s most recent financial crisis and the role played by ADRs in Argentine capital flight. Although Argentine investors were subject to capital controls, they were able to purchase stocks with associated ADRs for pesos in Argentina, convert them into ADRs, re-sell them in New York for dollars and deposit the dollar proceeds in U.S. bank accounts. In the paper we show that: (1) ADR discounts went as high as 60% (indicating that Argentine investors were willing to pay significant amounts in order to legally move their funds abroad), (2) the market anticipated (correctly) a 40% devaluation, (3) local market factors in Argentina became more important in pricing peso denominated stocks with associated ADRs, while the same stocks in New York were mainly priced based on global factors, (4) capital outflow using the ADR market was substantial (our estimate is between $835 million and$3.4 billion).http://deepblue.lib.umich.edu/bitstream/2027.42/39898/3/wp513.pd

Clinically Actionable Hypercholesterolemia and Hypertriglyceridemia in Children with Nonalcoholic Fatty Liver Disease

OBJECTIVE: To determine the percentage of children with nonalcoholic fatty liver disease (NAFLD) in whom intervention for low-density lipoprotein cholesterol or triglycerides was indicated based on National Heart, Lung, and Blood Institute guidelines. STUDY DESIGN: This multicenter, longitudinal cohort study included children with NAFLD enrolled in the National Institute of Diabetes and Digestive and Kidney Diseases Nonalcoholic Steatohepatitis Clinical Research Network. Fasting lipid profiles were obtained at diagnosis. Standardized dietary recommendations were provided. After 1 year, lipid profiles were repeated and interpreted according to National Heart, Lung, and Blood Institute Expert Panel on Integrated Guidelines for Cardiovascular Health and Risk Reduction. Main outcomes were meeting criteria for clinically actionable dyslipidemia at baseline, and either achieving lipid goal at follow-up or meeting criteria for ongoing intervention. RESULTS: There were 585 participants, with a mean age of 12.8 years. The prevalence of children warranting intervention for low-density lipoprotein cholesterol at baseline was 14%. After 1 year of recommended dietary changes, 51% achieved goal low-density lipoprotein cholesterol, 27% qualified for enhanced dietary and lifestyle modifications, and 22% met criteria for pharmacologic intervention. Elevated triglycerides were more prevalent, with 51% meeting criteria for intervention. At 1 year, 25% achieved goal triglycerides with diet and lifestyle changes, 38% met criteria for advanced dietary modifications, and 37% qualified for antihyperlipidemic medications. CONCLUSIONS: More than one-half of children with NAFLD met intervention thresholds for dyslipidemia. Based on the burden of clinically relevant dyslipidemia, lipid screening in children with NAFLD is warranted. Clinicians caring for children with NAFLD should be familiar with lipid management