CENTRAL BANK INTERVENTION AND EXCHANGE RATE BEHAVIOR: EMPIRICAL EVIDENCE FOR INDIA

Takeshi Inoue

The Singapore Economic Review (SER), 2015, vol. 60, issue 02, 1-11

Abstract: This paper examines the causal relationship between central bank intervention and exchange rate returns in India. Using monthly data from December 1997 to December 2011, the empirical results derived from the CCF approach of Cheung and Ng [Journal of Econometrics72(1996) 33–48] suggest that there is causality-in-variance from exchange rate returns to central bank intervention, but notvice versa. These findings are robust in the sense that they hold in cases where the returns were measured from either the spot rate or the forward rate. Therefore, we conclude that the Indian central bank has intervened in the foreign exchange market to respond to exchange rate volatility, although the volatility has not been influenced by central bank intervention in the form of net purchases of foreign currency in the market.

Keywords: Causality-in-variance; central bank; exchange rate; India; intervention; E58; F31 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Central bank intervention and exchange rate behaviour: empirical evidence for India (2012)
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DOI: 10.1142/S0217590815500162

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