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What Can the ECB Learn from Bundesbank Interventions? � Evidence on the Link Between Exchange Rate Volatility and Interventions

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Author Info

  • Jörg Döpke
  • Christian Pierdzioch

Abstract

Using daily Bundesbank foreign exchange market intervention data, we employ a multinomial logit approach to estimate an intervention reaction function for the German Central Bank using options implied volatilities and the deviation of the exchange rate from its target level as explanatory variables. The empirical results underscore that distinguishing between positive and negative interventions improves the statistical properties of the Bundesbank reaction function. As the Bundesbank is often being seen as a paragon for the European Central Bank (ECB), we also discuss the implications of our results for the intervention policy of the ECB.

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File URL: http://www.ifw-kiel.de/pub/kap?selectedYear=1999
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 955.

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Length: 30 pages
Date of creation: Nov 1999
Date of revision:
Handle: RePEc:kie:kieliw:955

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Related research

Keywords: Multinomial logit model; exchange rate volatility; central bank foreign exchange market interventions;

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Cited by:
  1. Peter Brandner & Harald Grech & Helmut Stix, 2001. "The Effectiveness of Central Bank Intervention in the EMS: The Post 1993 Experience," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 55, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Christian Pierdzioch, 2000. "The Effectiveness of the FX Market Interventions of the Bundesbank During the Louvre Period: An Options-Based Analysis," Kiel Working Papers 971, Kiel Institute for the World Economy.

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