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.
|Number of pages||26|
|Journal||Journal of the Japanese and International Economies|
|Publication status||Published - Mar 2003|
- Central bank interventions
- Exchange rate volatility
- Implied volatility
- Markov switching model