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Central Bank forex interventions assessed using realized moments

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  • BEINE, Michel
  • LAURENT, Sébastien
  • PALM, Franz

Abstract

This paper studies and assesses the impact of G3 Central Bank interventions on the DEM/USD exchange rate properties using daily realized moments of exchange rate returns (obtained from intraday data) for the period 1989-2001. Event studies in terms of the realized moments for the intervention day, the days preceding and following the intervention day illustrate the shape of this impact. Rolling regressions results for an ARFIMA model for realized moments are used to measure the intervention impact and characterize its significance. The analysis confirms previous findings of an increase of volatility after a coordinated Central Bank intervention. It highlights new findings on the timing and the persistence of coordinated interventions on exchange rate volatility, on important volatility spillovers, on the impact on exchange rate covariances and correlations and on skewness coefficients.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004001.

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Date of creation: 00 Jan 2004
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Handle: RePEc:cor:louvco:2004001

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Keywords: Central Bank Interventions; Exchange Rates Realized Moments; Intradaily Dynamics;

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  1. Beine,M. & Palm,F.C. & Laurent,S., 2003. "Central Bank Forex Interventions Assessed Using Realized Moments," Research Memorandum 057, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. BEINE, Michel & LAURENT, Sébastien & LECOURT, Christelle, . "Official central bank interventions and exchange rate volatility: Evidence from a regime-switching analysis," CORE Discussion Papers RP -1705, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Almekinders, Geert J & Eijffinger, Sylvester C W, 1994. "Daily Bundesbank and Federal Reserve Interventions: Are They a Reaction to Changes in the Level and Volatility of the DM/$-Rate?," Empirical Economics, Springer, vol. 19(1), pages 111-30.
  4. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February.
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  6. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," NBER Working Papers 8160, National Bureau of Economic Research, Inc.
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  11. Christopher J. Neely, 2000. "The practice of central bank intervention: looking under the hood," Working Papers 2000-028, Federal Reserve Bank of St. Louis.
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  19. Michel Beine & Sébastien Laurent, 2003. "Central Bank interventions and jumps in double long memory models of daily exchange rates," ULB Institutional Repository 2013/10435, ULB -- Universite Libre de Bruxelles.
  20. William Melick & Gabriele Galati, 1999. "Perceived central bank intervention and market expectations: an empirical study of the yen/dollar exchange rate, 1993 - 96," BIS Working Papers 77, Bank for International Settlements.
  21. Martin D. D. Evans & Richard K. Lyons, 2001. "Portfolio Balance, Price Impact, and Secret Intervention," NBER Working Papers 8356, National Bureau of Economic Research, Inc.
  22. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
  23. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
  24. Jeffrey A. Frankel, 1993. "On Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061546, December.
  25. Ole E. Barndorff-Nielsen & Shephard, 2002. "Econometric analysis of realized volatility and its use in estimating stochastic volatility models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(2), pages 253-280.
  26. Chang, Yuanchen & Taylor, Stephen J., 1998. "Intraday effects of foreign exchange intervention by the Bank of Japan1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 191-210, February.
  27. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
  28. Beine, Michel, 2004. "Conditional covariances and direct central bank interventions in the foreign exchange markets," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1385-1411, June.
  29. Dominguez & K., 1997. "The Market Microstructure of Central Bank Intervention," Working Papers 412, Research Seminar in International Economics, University of Michigan.
  30. Laurent, Sebastien & Peters, Jean-Philippe, 2002. " G@RCH 2.2: An Ox Package for Estimating and Forecasting Various ARCH Models," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 447-85, July.
  31. Baillie, Richard T. & Humpage, Owen F. & Osterberg, William P., 2000. "Intervention from an information perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 407-421, December.
  32. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
  33. Bonser-Neal, Catherine & Tanner, Glenn, 1996. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 853-878, December.
  34. Beine, Michel & Benassy-Quere, Agnes & Lecourt, Christelle, 2002. "Central bank intervention and foreign exchange rates: new evidence from FIGARCH estimations," Journal of International Money and Finance, Elsevier, vol. 21(1), pages 115-144, February.
  35. Hsieh, David A, 1989. "Modeling Heteroscedasticity in Daily Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 307-17, July.
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