TY - JOUR
T1 - Official central bank interventions and exchange rate volatility
T2 - Evidence from a regime-switching analysis
AU - Beine, Michel
AU - Laurent, Sébastien
AU - Lecourt, Christelle
PY - 2003/10
Y1 - 2003/10
N2 - 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.
AB - 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.
KW - Central bank intervention
KW - Exchange rate volatility
KW - Markov switching regimes
UR - http://www.scopus.com/inward/record.url?scp=0141744964&partnerID=8YFLogxK
U2 - 10.1016/S0014-2921(02)00306-9
DO - 10.1016/S0014-2921(02)00306-9
M3 - Article
AN - SCOPUS:0141744964
SN - 0014-2921
VL - 47
SP - 891
EP - 911
JO - European Economic Review
JF - European Economic Review
IS - 5
ER -