Can Central Bank Interventions Affect the Exchange Rate Volatility? Multivariate GARCH Approach Using Constrained Nonlinear Programming
AbstractThis study examines the impact of foreign currency market interventions of the Central Bank of Turkey (CBT) in a multivariate GARCH framework. CBT has switched to the floating exchange rate regime since 2001 crisis and announced that the interventions in the foreign exchange markets are aimed at reducing the volatility of the USD/YTL and EUR/YTL. However the literature documents that, foreign exchange interventions lead to an increase in exchange rate volatility. In an attempt to calculate the volatility, we employ a bivariate GARCH estimation with non-linear constrained optimization (NLP)  and BEKK  on the USD/YTL and EUR/YTL. Our results shed some doubt about the efficiency of these interventions in stabilizing the Turkish Lira market.
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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 0806.
Date of creation: 2008
Date of revision:
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Time series econometrics; Constrained Nonlinear programming; Multivariate GARCH; FOREX Interventions.;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-31 (All new papers)
- NEP-CBA-2008-08-31 (Central Banking)
- NEP-IFN-2008-08-31 (International Finance)
- NEP-MAC-2008-08-31 (Macroeconomics)
- NEP-MON-2008-08-31 (Monetary Economics)
- NEP-ORE-2008-08-31 (Operations Research)
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