Central bank intervention and the volatility of foreign exchange rates: evidence from the options market

Catherine Bonser-Neal and Glenn Tanner

No 95-04, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: This paper tests the effects of central bank intervention on the ex ante volatility of $/DM and $/Yen exchange rates. In contrast to previous research which employed GARCH estimates of conditional volatility, we estimate ex ante volatility using the implied volatilities of currency options prices. We also control for the effects of other macroeconomic announcements. We find little support for the hypothesis that central bank intervention decreased expected exchange rate volatility between 1985 and 1991. Federal Reserve intervention was generally associated with a positive change in exante $/DM and $/Yen volatility, or with no change. Perceived Bundesbank intervention did not alter $/DM ex ante volatility in any of the periods, while perceived Bank of Japan intervention was associated with positive changes in ex ante $/Yen volatility during the 1985-91 period as a whole and during the February 1987 to December 1989 post-Louvre Accord subperiod.

Keywords: Banks and banking, Central; Foreign exchange rates; options (search for similar items in EconPapers)
Date: 1995
References: Add references at CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:95-04

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Research Working Paper from Federal Reserve Bank of Kansas City Contact information at EDIRC.
Bibliographic data for series maintained by Zach Kastens ().