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Impact of Central Bank Intervention during Periods of Speculative Pressure: Evidence from the European Monetary System

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  • Helmut Stix

Abstract

This paper studies the effects of Banco de España and Banque de France interventions during the 1992-93 European Monetary System crises. In particular, a Markov Switching model is estimated where interventions influence the probabilities of transition between a calm and a turbulent regime. Furthermore, we analyze the impact of intervention on the expected rate of realignment. On balance, the results are consistent with the view that publicly known interventions but not secret interventions increased both the probability of switching to the turbulent regime as well as the expected realignment rate. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2007.

Suggested Citation

  • Helmut Stix, 2007. "Impact of Central Bank Intervention during Periods of Speculative Pressure: Evidence from the European Monetary System," German Economic Review, Verein für Socialpolitik, vol. 8, pages 399-427, August.
  • Handle: RePEc:bla:germec:v:8:y:2007:i::p:399-427
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    References listed on IDEAS

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    1. Rose, Andrew K. & Svensson, Lars E. O., 1994. "European exchange rate credibility before the fall," European Economic Review, Elsevier, vol. 38(6), pages 1185-1216, June.
    2. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, April.
    3. Flood, Robert & Marion, Nancy, 1999. "Perspectives on the Recent Currency Crisis Literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-26, January.
    4. Barry Eichengreen, 2000. "The EMS Crisis in Retrospect," NBER Working Papers 8035, National Bureau of Economic Research, Inc.
    5. Engel, Charles & Hakkio, Craig S, 1996. "The Distribution of Exchange Rates in the EMS," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(1), pages 55-67, January.
    6. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    7. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, April.
    8. Koedijk, Kees G. & Mizrach, Bruce & Stork, Philip A. & de Vries, Casper G., 1995. "New evidence on the effectiveness of foreign exchange market intervention," European Economic Review, Elsevier, vol. 39(3-4), pages 501-508, April.
    9. De Vries, C.G. & Leuven, K.U., 1994. "Stylized Facts of Nominal Exchange Rate Returns," Papers 94-002, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
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