The Impact of Central Bank FX Interventions on Currency Components

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 usin...

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Bibliographic Details
Published in:Journal of financial econometrics 2007-01, Vol.5 (1), p.154-183
Main Authors: Beine, Michel, Bos, Charles S., Laurent, Sébastien
Format: Article
Language:English
Subjects:
Central banks
Currency
Econometrics
Foreign exchange markets
Foreign exchange rates
Impact analysis
Investigations
Stochastic models
Studies
Volatility
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Summary: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.
ISSN:1479-8409
1479-8417
DOI:10.1093/jjfinec/nbl008