An Ex-Post Empirical Investigation of the Efficacy of Central Bank Interventions in Currency Markets: Bilateral Exchange Rate of the Dollar

Bahram Adrangi (), Mary Allender () and Kambiz Raffiee ()
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Bahram Adrangi: Pamplin School of Business Administration, The University of Portland, U.S.A.
Mary Allender: Pamplin School of Business Administration, The University of Portland, U.S.A.
Kambiz Raffiee: The University of Nevada, Reno, U.S.A.

Review of Economics & Finance, 2011, vol. 1, 19-34

Abstract: This paper investigates the role of central bank intervention in currency markets. Specifically, the bilateral exchange rates of the dollar versus the British pound, Swiss franc, and the yen are examined. Central banks conduct open market operations in order to regulate exchange rates in currency markets. The daily data and appropriate EGARCH models, which account for information asymmetry, provide the time varying volatility measures in the market for the three exchange rates. It is shown that the ex-post daily volatility in two out of three cases rises with central bank market interventions, while there is no statistically significant reaction in the daily volatility. Our findings suggest that rational expectations of currency traders may be responsible for these findings. Furthermore, our findings show that central bank expectations of intervention and reality of exchange rate behavior may be inconsistent.

Keywords: Central bank open market interventions; Currency markets; Bilateral exchange rates (search for similar items in EconPapers)
JEL-codes: F3 F31 F4 G15 G18 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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