 Central bank intervenyion under target zones: the portuguese escudo in the ERMJorge Braga de Macedo, Luis Nunes and Luis Pereira Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics Abstract: For Portugal, the transition to the Euro began in September 1989 and featured three successive institutional arrangements related to the Exchange Rate Mechanism of the European Monetary System: shadowing it, belonging to it with 6% and then with 15% fluctuation bands. Using daily data, we study how the degree of mean reversion of the exchange rate and central bank intervention reflect the change in economic regime towards stability and convertibility. Our Markov regime-switching framework with an EGARCH specification allows for deviations from central party and intervention to affect the mean, the conditional variance and the state transition probabilities in the different policy regimes. Mean reversion is significant even when volatility is high in ERM-6, unlike central bank intervention, which almost disappears in ERM_15. Intervention affects the mean and the variance of the exchange rate when volatility is low, and the variance in ERM-S, even when volatility is high. Keywords: Central bank intervention; target zones; exchange rate mechanism; regime-switching (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:unl:unlfep:wp435 Access Statistics for this paper More papers in Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics Contact information at EDIRC. |
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