Intervention and the foreign exchange risk premium: An empirical investigation of daily effects
Currency markets have witnessed a sharp increase in government intervention since 1985. Many observers believe that this intervention promoted the dollar's depreciation between 1985 and early 1987, and that intervention has since helped to stabilize dollar exchange rates. This paper tests for a systematic effect of daily dollar intervention on exchange rate risk premia. We test for both portfolio balance effects and signaling influences by using daily data on central bank intervention (in dollars) against both the yen and the West German mark. Following work by Dominguez (1989) and Loopesko (1984), we measure the daily risk premium in terms of the deviation from uncovered interest parity. However, we follow other empirical analyses of exchange rates and allow for generalized conditional autoregressive heteroscedasticity (GARCH). Some evidence is found for both the portfolio balance and signaling channels.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hali J. Edison, 1990. "Foreign currency operations: an annotated bibliography," International Finance Discussion Papers 380, Board of Governors of the Federal Reserve System (U.S.).
- Richard K. Lyons, 1986.
"Tests of the foreign exchange risk premium using the expected second moments implied by option pricing,"
International Finance Discussion Papers
290, Board of Governors of the Federal Reserve System (U.S.).
- Lyons, Richard K., 1988. "Tests of the foreign exchange risk premium using the expected second moments implied by option pricing," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 91-108, March.
- Mark, Nelson C., 1988. "Time-varying betas and risk premia in the pricing of forward foreign exchange contracts," Journal of Financial Economics, Elsevier, vol. 22(2), pages 335-354, December.
- Johnson, David, 1988. "The currency denomination of long-term debt in the Canadian corporate sector: An empirical analysis," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 77-90, March.
- Alberto Giovannini & Philippe Jorion, 1988.
"The Time-Variation of Risk and Return in the Foreign Exchange and Stock Markets,"
NBER Working Papers
2573, National Bureau of Economic Research, Inc.
- Giovannini, Alberto & Jorion, Philippe, 1989. " The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets," Journal of Finance, American Finance Association, vol. 44(2), pages 307-25, June.
- Robert E. Cumby, 1987.
"Is it Risk? Explaining Deviations from Uncovered Interest Parity,"
NBER Working Papers
2380, National Bureau of Economic Research, Inc.
- Cumby, Robert E., 1988. "Is it risk? : Explaining deviations from uncovered interest parity," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 279-299, September.
- Engel, Charles & Rodrigues, Anthony P, 1989.
"Tests of International CAPM with Time-Varying Covariances,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 4(2), pages 119-38, April-Jun.
- Charles Engel & Anthony P. Rodrigues, 1987. "Tests of International CAPM with Time-Varying Covariances," NBER Working Papers 2303, National Bureau of Economic Research, Inc.
- David K. Backus & Patrick J. Kehoe, 1988.
"On the denomination of government debt: a critique of the portfolio balance approach,"
116, Federal Reserve Bank of Minneapolis.
- Backus, David K. & Kehoe, Patrick J., 1989. "On the denomination of government debt : A critique of the portfolio balance approach," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 359-376, May.
- William H. Branson & Dale W. Henderson, 1984.
"The Specification and Influence of Asset Markets,"
NBER Working Papers
1283, National Bureau of Economic Research, Inc.
- Baillie, Richard T & Bollerslev, Tim, 2002.
"The Message in Daily Exchange Rates: A Conditional-Variance Tale,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 60-68, January.
- Baillie, Richard T & Bollerslev, Tim, 1989. "The Message in Daily Exchange Rates: A Conditional-Variance Tale," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 297-305, July.
- Tom Doan, . "RATS program to replicate Baillie and Bollerslev GARCH models with day-of-week effects," Statistical Software Components RTZ00172, Boston College Department of Economics.
- McCurdy, Thomas H & Morgan, Ieuan G, 1988. "Testing the Martingale Hypothesis in Deutsche Mark Futures with Models Specifying the Form of Heteroscedasticity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(3), pages 187-202, July-Sept.
- Owen F. Humpage, 1984. "Dollar intervention and the deutschemark-dollar exchange rate: a daily time-series model," Working Paper 8404, Federal Reserve Bank of Cleveland.
- Lastrapes, William D, 1989. "Exchange Rate Volatility and U.S. Monetary Policy: An ARCH Application," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 66-77, February.
- Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
- Loopesko, Bonnie E., 1984. "Relationships among exchange rates, intervention, and interest rates: An empirical investigation," Journal of International Money and Finance, Elsevier, vol. 3(3), pages 257-277, December.
- Warren E. Weber, 1986. "Do sterilized interventions affect exchange rates?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 14-23.
When requesting a correction, please mention this item's handle: RePEc:eee:glofin:v:3:y:1992:i:1:p:23-50. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.