Intraday Exchange Rate Dynamics and Monetary Policy

Aurélie Boubel () and Richard Topol
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Aurélie Boubel: EPEE, Université d'Evry-Val-d'Essonne, France
Richard Topol: CNRS and CREA, Ecole Polytechnique, France

No 99-20, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper, we investigate whether there is a simple relation between an indicator of monetary policy (here, interest rates) and exchange rate volatility. We use an intraday exchange rate model which relies on interactions between four kinds of agents (in domestic and foreign countries) : central banks, speculators, commercial traders and commercial banks. Central banks intervene exogenously in the model, they announce the level of interest rates at every beginning of the day in the Over-The-Counter market. The results suggest an implicit relation between the interest rates and the conditional variance of the exchange rate.

Keywords: exchange rate; intraday; volatility; central bank interest rate; market structure (search for similar items in EconPapers)
Pages: 26 pages
Date: 1999
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