Central Bank Intervention and Exchange Rate Volatility, its Continuous and Jump Components
FRB of St. Louis Working Paper No. 2006-031C
37 Pages Posted: 16 May 2006
Date Written: February 2007
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.
Keywords: intervention, exchange rate, jumps, bi-power variation, volatility, central bank
JEL Classification: F31, F33, C34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Official Intervention in the Foreign Exchange Market: Is it Effective, and, If so, How Does it Work?
By Mark P. Taylor and Lucio Sarno
-
By Gabriele Galati and William R. Melick
-
U.S. Intervention: Assessing the Probability of Success
By Owen Humpage
-
Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?
-
Is Foreign Exchange Intervention Effective?: The Japanese Experiences in the 1990s
-
Does Foreign Exchange Intervention Signal Future Monetary Policy?
By Graciela Kaminsky and Karen K. Lewis
-
The Practice of Central Bank Intervention: Looking Under the Hood
-
Is Sterilized Foreign Exchange Intervention Effective after All? An Event Study Approach
By Rasmus Fatum and Michael M. Hutchison