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What can the ECB learn from Bundesbank interventions? Evidence on the link between exchange rate volatility and interventions

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  • Döpke, Jörg
  • Pierdzioch, Christian

Abstract

Using daily Bundesbank foreign exchange market intervention data, we employ a multinomial logit approach to estimate an intervention reaction function for the German Central Bank using options implied volatilities and the deviation of the exchange rate from its target level as explanatory variables. The empirical results underscore that distinguishing between positive and negative interventions improves the statistical properties of the Bundesbank reaction function. As the Bundesbank is often being seen as a paragon for the European Central Bank (ECB), we also discuss the implications of our results for the intervention policy of the ECB.

Suggested Citation

  • 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 Kiel).
    • Handle: RePEc:zbw:ifwkwp:955
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    References listed on IDEAS

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    6. Bonser-Neal, Catherine & Roley, V Vance & Sellon, Gordon H, Jr, 1998. "Monetary Policy Actions, Intervention, and Exchange Rates: A Reexamination of the Empirical Relationships Using Federal Funds Rate Target Data," The Journal of Business, University of Chicago Press, vol. 71(2), pages 147-177, April.
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    8. Richard T. Baillie & Owen F. Humpage, 1992. "Post-Louvre intervention: did target zones stabilize the dollar?," Working Papers (Old Series) 9203, Federal Reserve Bank of Cleveland.
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    1. repec:onb:oenbwp:y::i:77:b:1 is not listed on IDEAS
    2. Brandner, Peter & Grech, Harald & Stix, Helmut, 2006. "The effectiveness of central bank intervention in the EMS: The post 1993 experience," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 580-597, June.
    3. Peter Brandner & Harald Grech, 2002. "Why Did Central Banks Intervene in the EMS? The Post-1993 Experience," WIFO Working Papers 192, WIFO.
    4. Pierdzioch, Christian, 2000. "The Effectiveness of the FX Market Interventions of the Bundesbank During the Louvre Period: An Options-Based Analysis," Kiel Working Papers 971, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Multinomial logit model; exchange rate volatility; central bank foreign exchange market interventions;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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