Central bank intervention and foreign exchange rates: New evidence from FIGARCH estimations

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.