TY  - JOUR
AU  - Dominguez,Kathryn M.
TI  - Does Central Bank Intervention Increase the Volatility of Foreign       Exchange Rates?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4532
PY  - 1993
Y2  - November 1993
DO  - 10.3386/w4532
UR  - http://www.nber.org/papers/w4532
L1  - http://www.nber.org/papers/w4532.pdf
N1  - Author contact info:
Kathryn M.E. Dominguez
University of Michigan
Department of Economics and Ford School
Weill Hall
735 South State Street
Ann Arbor, MI 48109
Tel: 734-764-9498
Fax: 734-763-9181
E-Mail: kathrynd@umich.edu
AB  - Since the abandonment of the Bretton Woods system of fixed exchange rates in the early 1970s, exchange rates have displayed a surprisingly high degree of time-conditional volatility.  This volatility can be explained statistically using autoregressive conditional heteroscedasticity models, but there remains the question of the economic source of this volatility.  Central bank intervention policy may provide part of the explanation.  Previous work has shown that central banks have relied heavily on intervention policy to influence the level of exchange rates, and that these operations have, at times, been effective.  This paper investigates whether central bank interventions have also influenced the variance of exchange rates.  The results from daily and weekly GARCH models of the $/DM and $/Yen rates over the period 1985 to 1991 indicate that publicly known Fed intervention generally decreased volatility over the full period. Further, results indicate that intervention need not be publicly known for it to influence the conditional variance of exchange rate changes. Secret intervention operations by both the Fed and the Bundesbank generally increased exchange rates volatility over the period.
ER  -