A Dynamic Model of Central Bank Intervention
AbstractWe examine central bank intervention in foreign exchange markets using a dynamic censored regression model. We allow the amount of purchase and sale interventions to depend nonlinearly upon lagged values of intervention and on measures of disorderly foreign exchange markets. Using data for the CBRT, we find persistence in interventions, which may suggest the presence of political costs and/or a signal of future monetary policy. We find strong evidence of nonnormality and heteroskedasticity in the Tobit model of the reaction function. Results using a robust estimator reveal the importance of considering these specification issues when modeling central bank intervention.
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Bibliographic InfoPaper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 0501.
Date of creation: 2005
Date of revision:
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More information through EDIRC
Exchange rate; intervention; central bank; dynamic Tobit; CLAD;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-01 (All new papers)
- NEP-CBA-2006-01-01 (Central Banking)
- NEP-FMK-2006-01-01 (Financial Markets)
- NEP-MAC-2006-01-01 (Macroeconomics)
- NEP-MON-2006-01-01 (Monetary Economics)
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