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Central bank intervention and exchange rate volatility, its continuous and jump components
Author(s) -
Beine Michel,
Lahaye Jérôme,
Laurent Sébastien,
Neely Christopher J.,
Palm Franz C.
Publication year - 2007
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.330
Subject(s) - volatility (finance) , jump , economics , econometrics , exchange rate , volatility swap , central bank , realized variance , monetary economics , implied volatility , monetary policy , physics , quantum mechanics
Abstract We analyse the relationship between interventions and volatility at daily and intra‐daily frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we employ bi‐power variation to decompose this volatility into a continuously varying and jump component. Analysis of the timing and direction of jumps and interventions imply that coordinated interventions tend to cause few, but large jumps. Most coordinated operations explain, statistically, an increase in the persistent (continuous) part of exchange rate volatility. This correlation is even stronger on days with jumps. Copyright © 2007 John Wiley & Sons, Ltd.