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

Article Abstract:

A study was conducted on the effects of central bank intervention on the ex ante volatility of $/DM and $/yen exchange rates between 1985 and 1991. The estimation of the ex ante volatility was made based on the implied volatilities of currency option prices. Control for the effects of other macroeconomic announcements was also done. The results indicate that central bank intervention does not decrease the expected exchange rate volatility. Furthermore, central bank intervention is generally linked to a positive change in ex ante exchange rate volatility.

Prices and rates, Options (Finance)

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Measuring the degree of exchange market intervention in a small open economy

Article Abstract:

An index of foreign-exchange-market intervention activity is described. The index, the properties of which were established through the use of a small open economy characterized by rational expectations, calculates intervention activity as the part of market pressure relieved by intervention. The index is applied to 1975-90 quarterly data for Canada and is used to calculate multilateral and bilateral intervention indices for the country during that period.

Canada, Open market operations

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Units roots and Granger causality in the EMS interest rates: the German Dominance Hypothesis revisited

Article Abstract:

The European Monetary System (EMS) was established in 1979 to provide an economic safety net for its member countries. After adopting a more non-symmetric system, the German Dominance Hypothesis was established due to the dominance of the German Central Bank in the EMS. This allows the Bundesbank to control interest and exchange rates against the US dollar, while the rest of the EMS adjusts their currency to the Deutsch Mark.

Exchange Rates, International Affairs, European Community, Currency Stabilization Programs, International aspects, European Monetary System, Currency stabilization, Deutsche Bundesbank, International liquidity

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