Essays on foreign exchange intervention, expectations, and media sentiment

This thesis examines how foreign exchange intervention (FXI) coordinates exchange rate expectations and how monetary policy shocks (MPS) impact media sentiment across advanced and emerging economies. It extends the literature by examining how credibility, media coverage, and macroeconomic conditions affect the effectiveness of central bank policy actions. The first essay examines how FXI influences exchange rate expectations and forecast disagreement, highlighting the influence of media coverage and central bank credibility. Using a refined proxy for interventions, exchange rate expectations, and media sentiment, the study provides new evidence on the signalling and coordinating effects of FXI, especially in emerging markets. The second essay examines the state-dependent effectiveness of FXI under inflation and exchange rate volatility regimes, using a Panel Smooth Transition Regression (PSTR) framework to capture nonlinear dynamics. The third essay shifts attention to monetary policy shocks and announcements, analysing how they influence media sentiment in the financial market, and highlighting the asymmetric effect of the shocks. Across the three essays, the findings indicate that the success of interventions and monetary policy announcements depends on media sentiment, the credibility of the central bank, and the prevailing macroeconomic environment. This thesis contributes to the literature by identifying expectations, media sentiment, and credibility as key transmission mechanisms, offering valuable insights for policymakers, especially in emerging markets, on enhancing the effectiveness of interventions.