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Market Volatility and Foreign Exchange Intervention

In: The First Decade of Living with the Global Crisis

Author

Listed:
  • Srđan Marinković

    (University of Niš)

  • Ognjen Radović

    (University of Niš)

Abstract

This paper explores unilateral interventions by National Bank of Serbia on RSD/EUR market, conducted over the period from 2004 to 2010 inclusive. We have employed a Markov-switching model that describes the time-varying nature of the exchange rate volatility. The changing nature of volatility may arise due to the process of information arrivals or being liquidity driven, but can also be a consequence of interventions. We found the probability of switching between high-volatility and low volatility states conditioned upon the intervention. The regime switching model proved to be able to indicate correctly the ex ante identified structural breaks that came from intervention policy. Moreover, our study raises doubts that the central bank intervenes also in response of detrimental past exchange rate trends rather than solely in response to excess volatility.

Suggested Citation

  • Srđan Marinković & Ognjen Radović, 2016. "Market Volatility and Foreign Exchange Intervention," Contributions to Economics, in: Anastasios Karasavvoglou & Zoran Aranđelović & Srđan Marinković & Persefoni Polychronidou (ed.), The First Decade of Living with the Global Crisis, edition 1, pages 165-183, Springer.
    • Handle: RePEc:spr:conchp:978-3-319-24267-5_12
    DOI: 10.1007/978-3-319-24267-5_12
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