What can the ECB learn from Bundesbank interventions? Evidence on the link between exchange rate volatility and interventions

Jörg Döpke and Christian Pierdzioch

No 955, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Using daily Bundesbank foreign exchange market intervention data, we employ a multinomial logit approach to estimate an intervention reaction function for the German Central Bank using options implied volatilities and the deviation of the exchange rate from its target level as explanatory variables. The empirical results underscore that distinguishing between positive and negative interventions improves the statistical properties of the Bundesbank reaction function. As the Bundesbank is often being seen as a paragon for the European Central Bank (ECB), we also discuss the implications of our results for the intervention policy of the ECB.

Keywords: Multinomial logit model; exchange rate volatility; central bank foreign exchange market interventions (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:955

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