Rules versus discretion in foreign exchange intervention: Evidence from official Bank of Canada high frequency data

*Corresponding author. Fatum gratefully acknowledges financial support from a SSHRC Research Grant. We thank the Bank of Canada for providing the official, high-frequency intervention data and Michael M. Hutchison and Barry Scholnick for very helpful comments. We are appreciative of excellent research assistance by Holly Sweeting. The views expressed do not necessarily reflect the views of the Bank of Canada. 2 The Bank of Canada is one of very few central banks that has kept records of the intraday timing of its intervention operations. This paper contains an empirical analysis of a high-frequency data-set of official Bank of Canada intervention data and exchange rates (quoted at the end of every 5-minute interval over a 24-hour period). The data-set covers the January 1995 to September 1998 period and is of particular interest as it spans over two distinctly different intervention regimes- a first regime characterized by purely rules-based (“mechanistic”) intervention versu