Exchange Rate Dynamics and the Relationship between the Random Walk Hypothesis and Official Interventions
AbstractThis paper examines the empirical evidence that official interventions are associated with periods of high predictability in exchange rate markets. We employ a block bootstrap methodology to build critical values for the Variance Ratio statistics and test for predictability within moving windows of fixed length sizes for major developed countries currencies. Empirical results suggest that interventions are indeed associated to periods of increase in predictability and that time varying risk premium may, at least partially, explain such results.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 173.
Date of creation: Aug 2008
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Web page: http://www.bcb.gov.br/?english
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- Whang, Yoon-Jae & Kim, Jinho, 2003. "A multiple variance ratio test using subsampling," Economics Letters, Elsevier, vol. 79(2), pages 225-230, May.
- Belaire-Franch, Jorge & Opong, Kwaku K., 2005. "Some evidence of random walk behavior of Euro exchange rates using ranks and signs," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1631-1643, July.
- Lazăr, Dorina & Todea, Alexandru & Filip, Diana, 2012. "Martingale difference hypothesis and financial crisis: Empirical evidence from European emerging foreign exchange markets," Economic Systems, Elsevier, vol. 36(3), pages 338-350.
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