Official central bank interventions and exchange rate volatility: Evidence from a regime-switching analysis

Michel Beine*, Sébastien Laurent, Christelle Lecourt

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

56 Citations (Scopus)

Abstract

In this paper, we investigate the effect of central bank interventions on the weekly returns and volatility of the DEM/USD and YEN/USD exchange rate returns. In contrast with previous analyses, we allow for regime-dependent specifications and investigate whether official interventions can explain the observed volatility regime switches. It is found that, depending on the prevailing volatility level, coordinated central bank interventions can lead to either a stabilizing or a destabilizing effect. Our results lead us to challenge the usual view that such interventions always imply increases in volatility.

Original languageEnglish
Pages (from-to)891-911
Number of pages21
JournalEuropean Economic Review
Volume47
Issue number5
DOIs
Publication statusPublished - Oct 2003

Keywords

  • Central bank intervention
  • Exchange rate volatility
  • Markov switching regimes

Fingerprint

Dive into the research topics of 'Official central bank interventions and exchange rate volatility: Evidence from a regime-switching analysis'. Together they form a unique fingerprint.

Cite this