Volatility expectations and asymmetric effects of direct interventions in the FX market

Michel Beine*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

In this paper, I investigate the effects of central bank interventions (CBI) on ex-ante exchange rate volatility. I measure volatility expectations by implied volatilities estimated from at-the-money currency options prices. Using a Markov switching model, I estimate the effects of CBI which depend on market conditions. The results suggest that the effects of CBI depend on the prevailing volatility regime. It is found that CBI on the DEM-USD market were not necessarily destabilizing after the Louvre Agreement when expected volatility was relatively high.

Original languageEnglish
Pages (from-to)55-80
Number of pages26
JournalJournal of the Japanese and International Economies
Volume17
Issue number1
DOIs
Publication statusPublished - Mar 2003

Keywords

  • Central bank interventions
  • Exchange rate volatility
  • Implied volatility
  • Markov switching model

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