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Central bank intervention and exchange rate volatility, its continuous and jump components

Author

Listed:
  • Michel Beine

    (University of Luxembourg and Free University of Brussels, Germany)

  • Jérôme Lahaye

    (CeReFiM, University of Namur and CORE, Belgium)

  • Sébastien Laurent

    (CeReFiM, University of Namur and CORE, Belgium)

  • Christopher J. Neely

    (Research Department, Federal Reserve Bank of St. Louis, USA)

  • Franz C. Palm

    (Maastricht University, Faculty of Economics and Business Administration and CESifo, The Netherlands)

Abstract

We analyse the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bi-power variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is even stronger on days with jumps. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Michel Beine & Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely & Franz C. Palm, 2007. "Central bank intervention and exchange rate volatility, its continuous and jump components," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(2), pages 201-223.
    • Handle: RePEc:ijf:ijfiec:v:12:y:2007:i:2:p:201-223
    DOI: 10.1002/ijfe.330
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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