Relationship between Exchange Rate Volatility and Central Bank Intervention

Behera, Harendra; Narasimhan, Vathsala; Murty, K. N.

doi:10.1177/139156140700900103

Cited by 25 publications

(19 citation statements)

References 16 publications

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“…Giving this objective, the interventions are found to be tentatively successful. This conclusion is supported by two recent studies, that is, Behera et al (2008) and Goyal and Arora (2010).…”

Section: Empirical Findings On Intervention Impact In Emerging Marsupporting

confidence: 78%

Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies

Menkhoff

2013

World Economy

111

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Nowadays foreign exchange interventions occur in emerging market economies whereas empirical studies on interventions mainly refer to advanced economies. However, interventions in emerging markets are different from those in advanced economies: they occur "regularly" and central banks have considerable leverage, derived from relatively high reserves, some non-sterilization, the central bank's information advantage and capital controls. Consequently, these interventions often successfully impact the level and volatility of exchange rates. Nevertheless, more research on interventions in emerging markets is needed analyzing the influence of heterogeneous institutional circumstances, examining the role of central bank communication and using high-frequency data. Terms of use: Documents in EconStor may JEL-Classification: F 31 (foreign exchange), E 58 (central banks and their policies), O 23(monetary policy in development) Keywords:foreign exchange, central bank intervention, emerging markets, transmission channelsFor helpful comments and research assistance I would like to thank Fabian Baetje, Oliver Gloede, Marie Holzhausen, two anonymous referees and the associate editor, Zhihong Yu.Leibniz Universität Hannover, Department of Economics, Königsworther Platz 1, D-30167 Hannover, Germany; menkhoff@gif.uni-hannover.de 2 Foreign Exchange Intervention in Emerging Markets:A Survey of Empirical Studies IntroductionThere is a broad literature on various aspects of foreign exchange interventions which is still focused on advanced economies, in particular regarding empirical intervention studies.By contrast, the world economy is changing towards a continuously increasing importance of emerging market economies. This move is particularly pronounced in foreign exchange as advanced economy countries are not the main owners of currency reserves anymore. Change is even more dramatic regarding foreign exchange interventions as the major central banksdomiciled in the advanced economies -have almost stopped intervening during the last decade or so. This leads to the unpleasant situation that most of our empirical research and literature refers to institutional circumstances that do no longer fit the typical case in the present world: foreign exchange intervention is nowadays mainly an issue in emerging markets. This study discusses available knowledge and open questions with a focus on empirical research.The existing discrepancy between intervention reality and empirical inte...

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Section: Empirical Findings On Intervention Impact In Emerging Marsupporting

confidence: 78%

Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies

Menkhoff

2013

World Economy

111

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“…Behera et al . () show, using monthly data, that RBI intervention has been effective in reducing the exchange rate volatility but not so much in influencing the direction of exchange rate movement. Goyal and Arora ( ) find forex market intervention measures more effective than other intervention measures by the Central bank.…”

Section: Brief Literature Surveymentioning

confidence: 96%

“…The RBI does not publish daily data on direct intervention in the forex market. Studies on intervention in the Indian foreign exchange market have used monthly data on direct intervention or daily data on proxy intervention variables and/or indirect intervention measures (Behera et al, 2008;Goyal & Arora, 2012). Proxy variables for daily intervention most commonly focus on liquidity operations in the domestic market, assuming sterilisation operations have taken place.…”

Section: Introductionmentioning

confidence: 99%

Impact of Central Bank Intervention in the Foreign Exchange Market: Evidence from India Using an Event Study Approach

Trivedi

Srinivasan

2016

J of App Econs and Policy

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The analysis of effectiveness of central bank intervention has yielded mixed empirical evidence and remains inconclusive to date. Managed float regimes can offer vital clues on this debate. We study the impact of central bank intervention on exchange rate direction, volatility and misalignment using data from the Indian managed float, characterised by consistent intervention by India's central bank. The paper uses event study methodology given the clustered and non‐stochastic nature of intervention. We find that direct intervention, through sale or purchase of foreign currency, is not successful in influencing the direction of exchange rate movement and does not have any statistically significant impact on volatility as corroborated by both monthly and daily data.

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“…Considering the international literature, AR-GARCH model (Behera, Narasimhan, & Murty, 2008) is a very good choice for modeling volatility transmission among market indices. The following mean equations were estimated for each market's return calculation.…”

Section: Ar-garch-bekk Modelmentioning

confidence: 99%

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2018

JQM

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Relationship between Exchange Rate Volatility and Central Bank Intervention

Cited by 25 publications

References 16 publications

Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies

Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies

Impact of Central Bank Intervention in the Foreign Exchange Market: Evidence from India Using an Event Study Approach

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