The impact of central bank FX interventions on currency components

Michel Beine, Charles S. Bos*, Sébastien Laurent

*Corresponding author for this work

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

This article assesses the impact of official FOREX interventions of the three major central banks in terms of the dynamics of the currency components of the major exchange rates over the period 1989-2003. We identify the currency components of the mean and volatility processes of exchange rates using the framework developed recently by Bos and Shephard (2006). Our results show that, in general, concerted interventions tend to affect the dynamics of both currency components of the exchange rate. In contrast, unilateral interventions are found to primarily affect the currency of the central bank present in the market. Our findings also emphasize a role for interventions conducted by these central banks on other related FOREX markets.

Original languageEnglish
Pages (from-to)154-183
Number of pages30
JournalJournal of Financial Econometrics
Volume5
Issue number1
DOIs
Publication statusPublished - Dec 2007

Keywords

  • Central bank interventions
  • Currency components
  • Foreign exchange
  • Markov chain Monte Carlo
  • Stochastic volatility
  • Structural time series models

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