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

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...

Full description

Saved in:
Bibliographic Details
Published in:Journal of the Japanese and international economies 2003-03, Vol.17 (1), p.55-80
Main Author: Beine, Michel
Format: Article
Language:English
Subjects:
Central bank interventions
Central banks
Economics
Exchange rate volatility
Exchange rates
Implied volatility
International economics
Japan
Markov switching model
Markovian processes
Volatility
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary: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.
ISSN:0889-1583
1095-8681
DOI:10.1016/S0889-1583(03)00002-9