Central bank intervention and exchange rate volatility, its continuous and jump components

Michel Beine, Jérôme Lahaye, Sébastien Laurent, Christopher J. Neely*, Franz C. Palm

*Corresponding author for this work

Research output: Contribution to journalArticle

37 Citations (Scopus)

Abstract

We analyse the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bi-power variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is even stronger on days with jumps.

Original languageEnglish
Pages (from-to)201-223
Number of pages23
JournalInternational Journal of Finance and Economics
Volume12
Issue number2
DOIs
Publication statusPublished - Apr 2007

Keywords

  • Bi-power variation
  • Exchange rate
  • Intervention
  • Jumps
  • Volatility

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