Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?
Since the abandonment of the Bretton Woods system of fixed exchange rates in the early 1970s, exchange rates have displayed a surprisingly high degree of time-conditional volatility. This volatility can be explained statistically using autoregressive conditional heteroscedasticity models, but there remains the question of the economic source of this volatility. Central bank intervention policy may provide part of the explanation. Previous work has shown that central banks have relied heavily on intervention policy to influence the level of exchange rates, and that these operations have, at times, been effective. This paper investigates whether central bank interventions have also influenced the variance of exchange rates. The results from daily and weekly GARCH models of the $/DM and $/Yen rates over the period 1985 to 1991 indicate that publicly known Fed intervention generally decreased volatility over the full period. Further, results indicate that intervention need not be publicly known for it to influence the conditional variance of exchange rate changes. Secret intervention operations by both the Fed and the Bundesbank generally increased exchange rates volatility over the period.
|Date of creation:||Nov 1993|
|Date of revision:|
|Publication status:||published as "Central Bank Intervention and Exchange Rate Volatility", Journal of International Money and Finance, 17, 1, 161-190, February 1998.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Kaminsky, G.L. & Lewis, K.K., 1992.
"Does Foreign Exchange Intervention Signal Future Monetary Policy?,"
Weiss Center Working Papers
93-3, Wharton School - Weiss Center for International Financial Research.
- Kaminsky, Graciela L. & Lewis, Karen K., 1996. "Does foreign exchange intervention signal future monetary policy?," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 285-312, April.
- Graciela L. Kaminsky & Karen K. Lewis, 1993. "Does foreign exchange intervention signal future monetary policy?," Finance and Economics Discussion Series 93-1, Board of Governors of the Federal Reserve System (U.S.).
- Graciela L. Kaminsky & Karen K. Lewis, 1996. "Does foreign exchange intervention signal future monetary policy?," Working Papers 96-7, Federal Reserve Bank of Philadelphia.
- Graciela Kaminsky & Karen K. Lewis, 1993. "Does Foreign Exchange Intervention Signal Future Monetary Policy?," NBER Working Papers 4298, National Bureau of Economic Research, Inc.
- Michael W. Klein & Karen K. Lewis, 1991.
"Learning About Intervention Target Zones,"
NBER Working Papers
3674, National Bureau of Economic Research, Inc.
- Ghosh, Atish R., 1992.
"Is it signalling? Exchange intervention and the dollar-Deutschemark rate,"
Journal of International Economics,
Elsevier, vol. 32(3-4), pages 201-220, May.
- Ghosh, A.R., 1990. "Is It Signalling Exchange Intervention And The Dollar- Deutschemark Rate," Papers 48, Princeton, Woodrow Wilson School - Discussion Paper.
- Hsieh, David A, 1989. "Modeling Heteroscedasticity in Daily Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 307-17, July.
- 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.
- Westerfield, Janice Moulton, 1977. "An examination of foreign exchange risk under fixed and floating rate regimes," Journal of International Economics, Elsevier, vol. 7(2), pages 181-200, May.
- Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- 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.
- 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.
- 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.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
- Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4532. 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: ()
If references are entirely missing, you can add them using this form.