 Do central bank actions curb exchange rate volatility?Abdul Rishad and Sanjeev Gupta International Journal of Business and Globalisation, 2023, vol. 35, issue 1/2, 48-68 Abstract: Floating exchange rate regime experience in India has always been about central bank's regular interventions through purchase and sale of foreign exchange assets. However, in recent years, this intervention has intensified because of lumpy capital inflow, seemingly signalling a bias in the direction of defending appreciation pressure. This study measures the effectiveness of intervention and its episodic change and its consistency by dividing the data into three sub-sample episodes. For this, it uses a GARCH (1, 1) model with weekly data on exchange rate, intervention and interest rate from April 1995 to December 2018. The results suggest significant influence of purchase intervention on exchange rate level as compared to that of sale intervention. Similarly, liquidity injection operations increased volatility, while liquidity absorption activities decreased it. Overall, the study presents empirical evidence for 'leaning against the wind' and 'fear of appreciation' policy in RBI's intervention operation. Keywords: exchange rate; central bank intervention; foreign exchange market; Reserve Bank of India; RBI; rupee volatility; fear of appreciation; leaning against the wind. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijbglo:v:35:y:2023:i:1/2:p:48-68 Access Statistics for this article More articles in International Journal of Business and Globalisation from Inderscience Enterprises Ltd |
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