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The Impact of Central Bank FX Interventions on Currency Components

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Author Info

  • Michel Beine

    ()
    (University of Luxemburg, and Free University of Brussels)

  • Charles S. Bos

    ()
    (Vrije Universiteit Amsterdam)

  • Sebastian Laurent

    ()
    (University of Namur, and CORE)

Abstract

This paper is the first attempt to assess the impact of official FOREX interventions of the three major central banks in terms of the dynamics of the currency components of the major exchange rates (EUR/USD and YEN/USD) over the period 1989-2003. We identify the currency components of the mean and the volatility processes of exchange rates using the recent Bayesian framework developed by Bos and Shephard (2004). Our results show that in general, the concerted interventions tend to affect the dynamics of both currency components of the exchange rate. In contrast, unilateral interventions are found to primarily affect the currency of the central bank present in the market. Our findings also emphasize a role for interventions conducted by these central banks on other related FOREX markets.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-103/4.

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Date of creation: 10 Nov 2005
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Handle: RePEc:dgr:uvatin:20050103

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Keywords: Central banks; interventions; exchange rates; stochastic volatility; state space;

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References

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Citations

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Cited by:
  1. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Working Papers 2005-030, Federal Reserve Bank of St. Louis.
  2. Michel Beine & Charles S. Bos & Serge Coulombe, 2009. "Does the Canadian Economy suffer from Dutch Disease?," Tinbergen Institute Discussion Papers 09-096/4, Tinbergen Institute.
  3. Charles S. Bos, 2008. "Model-based Estimation of High Frequency Jump Diffusions with Microstructure Noise and Stochastic Volatility," Tinbergen Institute Discussion Papers 08-011/4, Tinbergen Institute.
  4. Beine, Michel & Bos, Charles S. & Coulombe, Serge, 2012. "Does the Canadian economy suffer from Dutch disease?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 468-492.
  5. Charles S. Bos, 2008. "Model-based Estimation of High Frequency Jump Diffusions with Microstructure Noise and Stochastic Volatility," Tinbergen Institute Discussion Papers 08-011/4, Tinbergen Institute.
  6. Tolga Caskurlu & Mustafa C. Pinar & Aslihan Salih & Ferhan Salman, 2008. "Can Central Bank Interventions Affect the Exchange Rate Volatility? Multivariate GARCH Approach Using Constrained Nonlinear Programming," Working Papers 0806, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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