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The impact of Central Bank FX interventions on currency components

  • BEINE, Michel
  • BOS, Charles S.
  • LAURENT, Sébastien

This discussion paper led to a publication in 'Journal of Financial Econometrics' , 2007, 5(1), 154-183. This paper is the first attempt to assess the impact of official FOREX interventions of the three major central banks in terms of the dynamics of the currency components of the major exchange rates (EUR/USD and YEN/USD) over the period 1989-2003. We identify the currency components of the mean and the volatility processes of exchange rates using the recent Bayesian framework developed by Bos and Shephard (2004). Our results show that in general, the concerted interventions tend to affect the dynamics of both currency components of the exchange rate. In contrast, unilateral interventions are found to primarily affect the currency of the central bank present in the market. Our findings also emphasize a role for interventions conducted by these central banks on other related FOREX markets.

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File URL: http://dx.doi.org/10.2139/ssrn.844704
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 1980.

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Handle: RePEc:cor:louvrp:1980
Note: In : Journal of Financial Econometrics, 5(1), 2006
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  1. Tims, B. & Mahieu, R.J., 2003. "A Range-Based Multivariate Model for Exchange Rate Volatility," ERIM Report Series Research in Management ERS-2003-022-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  2. Charles Bos & Neil Shephard, 2006. "Inference for Adaptive Time Series Models: Stochastic Volatility and Conditionally Gaussian State Space Form," Econometric Reviews, Taylor & Francis Journals, vol. 25(2-3), pages 219-244.
  3. Charles S. Bos & Ronald J. Mahieu & Herman K. van Dijk, 2001. "Daily Exchange Rate Behaviour and Hedging of Currency Risk," Tinbergen Institute Discussion Papers 01-017/4, Tinbergen Institute.
  4. Torben G. Andersen & Tim Bollerslev & Nour Meddahi, 2005. "Correcting the Errors: Volatility Forecast Evaluation Using High-Frequency Data and Realized Volatilities," Econometrica, Econometric Society, vol. 73(1), pages 279-296, 01.
  5. Beine,M. & Palm,F.C. & Laurent,S., 2003. "Central Bank Forex Interventions Assessed Using Realized Moments," Research Memorandum 057, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  6. Hung, Juann H, 1997. "Intervention strategies and exchange rate volatility: a noise trading perspective," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 779-793, September.
  7. Michel Beine & Agnes Bénassy-Quéré & Christelle Lecourt, 2002. "Central Bank intervention and foreign exchange rates: new evidence from FIGARCH estimations," ULB Institutional Repository 2013/10445, ULB -- Universite Libre de Bruxelles.
  8. Mahieu, Ronald & Schotman, Peter, 1994. "Neglected common factors in exchange rate volatility," Journal of Empirical Finance, Elsevier, vol. 1(3-4), pages 279-311, July.
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  16. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February.
  17. BEINE, Michel & LAURENT, Sébastien & LECOURT, Christelle, . "Official central bank interventions and exchange rate volatility: Evidence from a regime-switching analysis," CORE Discussion Papers RP 1705, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  27. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 1994. "Bayesian Analysis of Stochastic Volatility Models: Comments: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 413-17, October.
  28. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
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  31. Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 200-224.
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