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Working Paper 2006-031C

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"Central Bank Intervention and Exchange Rate Volatility, Its Continuous and Jump Components"
by Michel Beine, Jérôme Lahaye, Sébastien Laurent, Christopher J. Neely, and Franz C. Palm

We analyze the relationship between interventions and volatility at daily and intra-daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bipower variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is even stronger on days with jumps.

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Category > Applied Econometrics
Category > Finance
Category > International
Author > Christopher J. Neely