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http://ssrn.com/abstract=901267
 
 

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Central Bank Intervention and Exchange Rate Volatility, its Continuous and Jump Components


Michel A. R. Beine


University of Luxemburg; CESifo (Center for Economic Studies and Ifo Institute)

Jerome Lahaye


Facultés Universitaires Notre-Dame de la Paix (FUNDP); University of Namur; Catholic University of Louvain

Sébastien Laurent


French National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM); Institut d'Administration des Entreprises d'Aix-en-Provence (IAE Aix)

Christopher J. Neely


Federal Reserve Bank of St. Louis - Research Division

Franz C. Palm


University of Maastricht - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

February 2007

FRB of St. Louis Working Paper No. 2006-031C

Abstract:     
We analyze the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bipower variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is even stronger on days with jumps.

Number of Pages in PDF File: 37

Keywords: intervention, exchange rate, jumps, bi-power variation, volatility, central bank

JEL Classification: F31, F33, C34

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Date posted: May 16, 2006  

Suggested Citation

Beine, Michel A. R. and Lahaye, Jerome and Laurent, Sébastien and Neely, Christopher J. and Palm, Franz C., Central Bank Intervention and Exchange Rate Volatility, its Continuous and Jump Components (February 2007). Available at SSRN: http://ssrn.com/abstract=901267 or http://dx.doi.org/10.2139/ssrn.901267

Contact Information

Michel A. R. Beine
University of Luxemburg ( email )
L-1511 Luxembourg
Luxembourg
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Jerome Lahaye
Facultés Universitaires Notre-Dame de la Paix (FUNDP) ( email )
Rempart de la Vierge, 8
Namur 5000
Belgium
University of Namur ( email )
8 rempart de la vierge
Namur, 5000
Belgium
Catholic University of Louvain ( email )
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
Sébastien Laurent
French National Center for Scientific Research (CNRS) - Research Group in Quantitative Saving (GREQAM) ( email )
Centre de la Vieille Charité
2, rue de la Charité
Marseille, 13002
France
Institut d'Administration des Entreprises d'Aix-en-Provence (IAE Aix) ( email )
Clos Guiot Puyricard - CS 30063
Aix en Provence, Bouch du Rhone 13089
France
Christopher J. Neely (Contact Author)
Federal Reserve Bank of St. Louis - Research Division ( email )
411 Locust St
Saint Louis, MO 63011
United States
314-444-8568 (Phone)
314-444-8731 (Fax)
HOME PAGE: http://www.stls.frb.org/research/econ/cneely/
Franz C. Palm
University of Maastricht - Department of Economics ( email )
P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-(0)43-3883833 (Phone)
+31-(0)43-3258535 (Fax)
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.cesifo.de
Feedback to SSRN


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