Does Exchange Rate Intervention Trigger Volatility

A Vadivel and M Ramachandran ()

No 328, IEG Working Papers from Institute of Economic Growth

Abstract: This study aims at investigating two important issues concerning the exchange rate intervention policy of the Reserve Bank of India: (1) whether there is any asymmetry in intervention; and (2) whether intervention triggers volatility. The empirical evidence derived from a class of GARCH and A-PARCH models indicate the latter one fits the data much better than the conventional GARCH models. Further, intervention seems to have increased exchange rate volatility; the official sale of foreign exchange have had a relatively larger impact on exchange volatility than official purchase. This is consistent with the argument that secret intervention creates ambiguity in the market; hence, it results in larger volatility of exchange rate.

Keywords: Exchange rate; foreign exchange reserve; ARCH; GARCH; A-PARCH (search for similar items in EconPapers)
JEL-codes: C32 C52 F31 F41 G15 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013
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Published as Institute of Economic Growth, Delhi, 2013, pages 1-20

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Related works:
Working Paper: Does Exchange Rate Intervention Trigger Volatility? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:awe:wpaper:328

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