Why Did Central Banks Intervene in ERM I? The Post-1993 Experience
AbstractIn this paper, we present stylized facts about exchange rate fluctuations and intervention behavior in the Exchange Rate Mechanism I (ERM I), in particular in light of the recent literature on multilateral target zone models. We estimate bilateral exchange rate distributions of the maximum spot rate deviations of six ERM I currencies, explicitly taking the multilateral setting of ERM I into account. In a further analysis, we estimate short-term reaction functions for the central banks of Belgium, Denmark, France, Ireland, Portugal, and Spain by applying a Tobit analysis. The period under review is from August 1993 to April 1998. We use daily exchange rate and intervention data. The exchange rate position in the band (deviation of the deutschemark (DEM) spot rates from the DEM central parity) significantly induces intervention activity. There is less evidence that changes in volatility trigger central bank intervention.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal IMF Staff Papers.
Volume (Year): 52 (2005)
Issue (Month): 1 (April)
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Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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- Chen, Ho-Chyuan & Chang, Kuang-Liang & Yu, Shih-Ti, 2012. "Application of the Tobit model with autoregressive conditional heteroscedasticity for foreign exchange market interventions," Japan and the World Economy, Elsevier, vol. 24(4), pages 274-282.
- Brandner, Peter & Grech, Harald & Stix, Helmut, 2006.
"The effectiveness of central bank intervention in the EMS: The post 1993 experience,"
Journal of International Money and Finance,
Elsevier, vol. 25(4), pages 580-597, June.
- Peter Brandner & Harald Grech & Helmut Stix, 2001. "The Effectiveness of Central Bank Intervention in the EMS: The Post 1993 Experience," Working Papers 55, Oesterreichische Nationalbank (Austrian Central Bank).
- Peter Brandner & Harald Grech & Helmut Stix, 2001. "The Effectiveness of Central Bank Intervention in the EMS. The Post 1993 Experience," WIFO Working Papers 168, WIFO.
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