Risk Premium and Central Bank Intervention
AbstractThis study examines the relation between the risk premium and central bank intervention. Forward rates are calculated for the Turkish Lira-USD exchange market and then the effect of central bank intervention on the risk premium is estimated. Using high quality daily intervention data from the Central Bank of Turkey as well as implied forward rates, an MA (21)-GARCH (1,1) model is estimated. Both purchases and sales of US dollars by the Central Bank of Turkey appear to have no effect on the size of risk premium for TL/USD for the free float period. Similar results are found for the managed float period. Empirical support was weak for the theoretical model, with intervention having a significant effect on the risk premium.
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Bibliographic InfoArticle provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.
Volume (Year): 6 (2006)
Issue (Month): 1 ()
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Postal: Head Office, Istiklal Cad. 10 Ulus, 06100 Ankara
Phone: (90 312) 507 5000
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Web page: http://www.tcmb.gov.tr/
More information through EDIRC
Central Bank Intervention; Risk Premium;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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