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The Impact of Central Bank FX Interventions on Currency Components

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  • Michel Beine
  • Charles S. Bos
  • Sébastien Laurent

Abstract

This article assesses the impact of official FOREX interventions of the three major central banks in terms of the dynamics of the currency components of the major exchange rates over the period 1989--2003. We identify the currency components of the mean and volatility processes of exchange rates using the framework developed recently by Bos and Shephard (2006). Our results show that, in general, concerted interventions tend to affect the dynamics of both currency components of the exchange rate. In contrast, unilateral interventions are found to primarily affect the currency of the central bank present in the market. Our findings also emphasize a role for interventions conducted by these central banks on other related FOREX markets. Copyright 2007, Oxford University Press.

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Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 5 (2007)
Issue (Month): 1 ()
Pages: 154-183

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Handle: RePEc:oup:jfinec:v:5:y:2007:i:1:p:154-183

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Cited by:
  1. Tolga Caskurlu & Mustafa C. Pinar & Aslihan Salih & Ferhan Salman, 2008. "Can Central Bank Interventions Affect the Exchange Rate Volatility? Multivariate GARCH Approach Using Constrained Nonlinear Programming," Working Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 0806, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. Michel Beine & Charles Bos & Serge Coulombe, 2009. "Does the Canadian economy suffer from Dutch Disease?," CREA Discussion Paper Series, Center for Research in Economic Analysis, University of Luxembourg 09-06, Center for Research in Economic Analysis, University of Luxembourg.
  3. Charles S. Bos, 2008. "Model-based Estimation of High Frequency Jump Diffusions with Microstructure Noise and Stochastic Volatility," Tinbergen Institute Discussion Papers, Tinbergen Institute 08-011/4, Tinbergen Institute.
  4. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
  5. Charles S. Bos, 2008. "Model-based Estimation of High Frequency Jump Diffusions with Microstructure Noise and Stochastic Volatility," Tinbergen Institute Discussion Papers, Tinbergen Institute 08-011/4, Tinbergen Institute.
  6. Michel Beine & Charles S. Bos & Serge Coulombe, 2009. "Does the Canadian Economy suffer from Dutch Disease?," Tinbergen Institute Discussion Papers, Tinbergen Institute 09-096/4, Tinbergen Institute.

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