Can Central Bank Interventions Affect the Exchange Rate Volatility? Multivariate GARCH Approach Using Constrained Nonlinear Programming
This study examines the impact of foreign currency market interventions of the Central Bank of Turkey (CBT) in a multivariate GARCH framework. CBT has switched to the floating exchange rate regime since 2001 crisis and announced that the interventions in the foreign exchange markets are aimed at reducing the volatility of the USD/YTL and EUR/YTL. However the literature documents that, foreign exchange interventions lead to an increase in exchange rate volatility. In an attempt to calculate the volatility, we employ a bivariate GARCH estimation with non-linear constrained optimization (NLP)  and BEKK  on the USD/YTL and EUR/YTL. Our results shed some doubt about the efficiency of these interventions in stabilizing the Turkish Lira market.
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- 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.
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- Weiss, Andrew A., 1986. "Asymptotic Theory for ARCH Models: Estimation and Testing," Econometric Theory, Cambridge University Press, vol. 2(01), pages 107-131, April.
- repec:syd:wpaper:99-05 is not listed on IDEAS
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