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Abstract

We analyze the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bipower variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is even stronger on days with jumps.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-031.

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Date of creation: 2007
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Handle: RePEc:fip:fedlwp:2006-031

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Find related papers by JEL classification:

• F31 - International Economics - - International Finance - - - Foreign Exchange
• F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
• C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

This paper has been announced in the following NEP Reports:

• NEP-ALL-2006-05-27 (All new papers)
• NEP-CBA-2006-05-27 (Central Banking)
• NEP-FMK-2006-05-27 (Financial Markets)
• NEP-IFN-2006-05-27 (International Finance)
• NEP-MON-2006-05-27 (Monetary Economics)

References

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24. repec:rus:hseeco:21608 is not listed on IDEAS
25. 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.

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