Central bank intervention and foreign exchange rates

New evidence from FIGARCH estimations

Michel Beine*, Agnès Bénassy-Quéré, Christelle Lecourt

*Corresponding author for this work

Research output: Contribution to journalArticle

80 Citations (Scopus)

Abstract

In this paper, we investigate the effects of official interventions on the (short run) evolution and volatility of exchange rates. To this aim, we rely on a new measure of volatility implied by the FIGARCH model that outperforms the traditionally used GARCH one. It is found that central bank interventions exert an incorrectly signed effect on the levels of exchange rates and tend to increase their volatility in the short run. In general, our results also show that the traditional GARCH estimations tend to underestimate the effects in terms of volatility.

Original languageEnglish
Pages (from-to)115-144
Number of pages30
JournalJournal of International Money and Finance
Volume21
Issue number1
DOIs
Publication statusPublished - Feb 2002

Keywords

  • Central bank intervention
  • Exchange rate volatility
  • FIGARCH

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