The Effectiveness of Central Bank Intervention in the EMS: The Post 1993 Experience
We analyze the effectiveness of intervention in the European Monetary System by using daily data on the DEM-intervention activity of six European central banks, covering the period from August 1993 to April 1998. To test for the influence of intervention we apply EGARCH models. To allow for regime specific intervention effects we also estimate Markov Switching autoregressive conditional heteroscedasticity models. The results from the EGARCH models show that interventions influenced the conditional mean in only one case. Both volatility increasing and decreasing effects are found for the conditional variance. In the MS-ARCH model more effects on the mean are found. If significant, intervention tends to affect the level of the six ERM I exchange rates only in periods of low and medium volatility. For the conditional variance more volatility decreasing than increasing effects are found. Overall, given our approaches (EGARCH and MS-ARCH), the results show that even in the same institutional framework, intervention does not seem to affect the means and variances in a consistent and predictable manner.
|Date of creation:||03 Dec 2001|
|Contact details of provider:|| Postal: P.O. Box 61, A-1011 Vienna, Austria|
Phone: +43/1/404 20 7205
Fax: +43/1/404 20 7299
Web page: http://www.oenb.at/
More information through EDIRC
|Order Information:|| Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria|
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.:
- Fischer, Andreas M & Zurlinden, Mathias, 1999. "Exchange Rate Effects of Central Bank Interventions: An Analysis of Transaction Prices," Economic Journal, Royal Economic Society, vol. 109(458), pages 662-676, October.
- Iannizzotto, Matteo & Taylor, Mark P, 1999. "The Target Zone Model, Non-linearity and Mean Reversion: Is the Honeymoon Really Over?," Economic Journal, Royal Economic Society, vol. 109(454), pages 96-110, March.
- Beetsma, Roel M W J & van der Ploeg, Frederick, 1994.
"Intramarginal Interventions, Bands and the Pattern of EMS Exchange Rate Distributions,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 583-602, August.
- Beetsma, R.M.W.J. & van der Ploeg, F., 1993. "Intramarginal interventions, bands and the pattern of EMS exchange rate distributions," Discussion Paper 1993-48, Tilburg University, Center for Economic Research.
- Flandreau, Marc, 1996.
"The Burden of Intervention: Externalities in Multilateral Exchange Rates Arrangements,"
CEPR Discussion Papers
1504, C.E.P.R. Discussion Papers.
- Flandreau, Marc, 1998. "The burden of intervention: externalities in multilateral exchange rates arrangements," Journal of International Economics, Elsevier, vol. 45(1), pages 137-171, June.
- Geert Bekaert & Stephen F. Gray, 1996.
"Target Zones and Exchange Rates: An Empirical Investigation,"
NBER Working Papers
5445, National Bureau of Economic Research, Inc.
- Bekaert, Geert & Gray, Stephen F., 1998. "Target zones and exchange rates:: An empirical investigation," Journal of International Economics, Elsevier, vol. 45(1), pages 1-35, June.
- Humpage, Owen F, 1999.
"U.S. Intervention: Assessing the Probability of Success,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 31(4), pages 731-747, November.
- Owen F. Humpage, 1996. "U.S. intervention: assessing the probability of success," Working Paper 9608, Federal Reserve Bank of Cleveland.
- Dominguez & K., 1997.
"The Market Microstructure of Central Bank Intervention,"
412, Research Seminar in International Economics, University of Michigan.
- Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
- Kathryn M. Dominguez, 1999. "The Market Microstructure of Central Bank Intervention," NBER Working Papers 7337, National Bureau of Economic Research, Inc.
- Karen K. Lewis, 1995. "Stochastic Regime Switching and Stabilizing Policies within Regimes," NBER Working Papers 5289, National Bureau of Economic Research, Inc.
- Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-1369, December.
- Gray, Stephen F., 1996.
"Modeling the conditional distribution of interest rates as a regime-switching process,"
Journal of Financial Economics,
Elsevier, vol. 42(1), pages 27-62, September.
- Tom Doan, "undated". "RATS programs to replicate Gray's 1996 Regime Switching GARCH paper," Statistical Software Components RTZ00080, Boston College Department of Economics.
- Baillie, Richard T. & P. Osterberg, William, 1997. "Central bank intervention and risk in the forward market," Journal of International Economics, Elsevier, vol. 43(3-4), pages 483-497, November.
- Graciela Kaminsky & Karen K. Lewis, 1993.
"Does Foreign Exchange Intervention Signal Future Monetary Policy?,"
NBER Working Papers
4298, National Bureau of Economic Research, Inc.
- 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, 1996. "Does foreign exchange intervention signal future monetary policy?," Working Papers 96-7, Federal Reserve Bank of Philadelphia.
- 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.
- 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.).
- Hamilton, James D. & Susmel, Raul, 1994.
"Autoregressive conditional heteroskedasticity and changes in regime,"
Journal of Econometrics,
Elsevier, vol. 64(1-2), pages 307-333.
- Tom Doan, "undated". "RATS programs to estimate Hamilton-Susmel Markov Switching ARCH model," Statistical Software Components RTZ00083, Boston College Department of Economics.
- Döpke, Jörg & Pierdzioch, Christian, 1999. "What can the ECB learn from Bundesbank interventions? Evidence on the link between exchange rate volatility and interventions," Kiel Working Papers 955, Kiel Institute for the World Economy (IfW).
- Labhard, Vincent & Wyplosz, Charles, 1996. "The New EMS: Narrow Bands inside Deep Bands," American Economic Review, American Economic Association, vol. 86(2), pages 143-146, May.
- 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).
- 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.
- Charles Engel & Craig S. Hakkio, 1994. "The Distribution of Exchange Rates in the EMS," NBER Working Papers 4834, National Bureau of Economic Research, Inc.
- Charles Engel & Craig S. Hakkio, 1994. "The distribution of exchange rates in the EMS," Research Working Paper 94-03, Federal Reserve Bank of Kansas City.
- Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
- 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.
- Yin-Wong Cheung & Menzie D. Chinn, 1999. "Macroeconomic Implications of the Beliefs and Behavior of Foreign Exchange Traders," NBER Working Papers 7417, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:onb:oenbwp:55. 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: (Markus Knell and Helmut Stix)
If references are entirely missing, you can add them using this form.