Central bank intervention and exchange rate dynamics: A rationale for the regime-switching process of exchange rates

In this paper we study the eﬀect of central bank intervention within a heterogeneous expectations exchange rate model. The empirical evidence is conducted by applying a Markov switching approach to daily AUD/USD exchange rate, intervention data of the Reserve Bank of Australia from 2006 to 2012. Our results are supporting both chartists and fundamentalist regimes. It is shown that the two regimes are persistent. However, Reserve Bank of Australia efforts to exert a stabilizing eﬀect of foreign exhange interventions, the result is inconclusive.

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Modeling Sources of Asymmetry in the Volatility of the Moroccan Dirham Exchange Rate

Applied Economics and Finance ◽

10.11114/aef.v8i4.5232 ◽

2021 ◽

Vol 8 (4) ◽

pp. 31

Author(s):

KHATTAB Ahmed ◽

SALMI Yahya

Keyword(s):

Exchange Rate ◽

Central Bank ◽

Exchange Rates ◽

Foreign Exchange ◽

Selection Criterion ◽

Econometric Models ◽

Interbank Market ◽

Foreign Exchange Reserves ◽

Central Bank Intervention ◽

The Exchange Rate

The main objective of this paper is to study the sources of asymmetry in the volatility of the bilateral exchange rates of the Moroccan dirham (MAD), against the EUR and the USD using the asymmetric econometric models of the ARCH-GARCH family. An empirical analysis was conducted on daily central bank data from March 2003 to March 2021, with a sample size of 4575 observations. Central bank intervention in the foreign exchange (interbank) market was found to affect the asymmetry in the volatility of the bilateral EUR/MAD and USD/MAD exchange rates. Specifically, sales of foreign exchange reserves by the monetary authority cause a fall in the exchange rate, which means that the market response to shocks is asymmetric. Finally, the selection criterion (AIC) allowed us to conclude that the asymmetric model AR(1)-TGARCH(1,1) is adequate for modeling the volatility of the exchange rate of the Moroccan dirham.

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Central Bank Intervention and Exchange Rate Volatility

CFA Digest ◽

10.2469/dig.v29.n1.406 ◽

1999 ◽

Vol 29 (1) ◽

pp. 15-17

Author(s):

H. Kent Baker

Keyword(s):

Exchange Rate ◽

Central Bank ◽

Exchange Rate Volatility ◽

Central Bank Intervention

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Exchange Rates and Monetary Fundamentals: What Do We Learn from Linear and Nonlinear Regressions?

Economics Research International ◽

10.1155/2014/746956 ◽

2014 ◽

Vol 2014 ◽

pp. 1-14 ◽

Cited By ~ 1

Author(s):

Guangfeng Zhang

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Correction Model ◽

Exchange Rate Dynamics ◽

Long Run ◽

Exchange Rate Movements ◽

Short Run ◽

Us Dollar ◽

Linear And Nonlinear ◽

Japanese Yen

This paper revisits the association between exchange rates and monetary fundamentals with the focus on both linear and nonlinear approaches. With the monthly data of Euro/US dollar and Japanese yen/US dollar, our linear analysis demonstrates the monetary model is a long-run description of exchange rate movements, and our nonlinear modelling suggests the error correction model describes the short-run adjustment of deviations of exchange rates, and monetary fundamentals are capable of explaining exchange rate dynamics under an unrestricted framework.

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An Interpretation of Recent Research on Exchange Rate Target Zones

The Journal of Economic Perspectives ◽

10.1257/jep.6.4.119 ◽

1992 ◽

Vol 6 (4) ◽

pp. 119-144 ◽

Cited By ~ 140

Author(s):

Lars E. O Svensson

Keyword(s):

Exchange Rate ◽

Central Bank ◽

Exchange Rates ◽

Interest Rates ◽

Empirical Research ◽

Target Zones ◽

The Difference ◽

Exchange Rate Target Zones ◽

Main Ideas ◽

Central Bank Interventions

How do exchange rate bands work compared to completely fixed rates (between realignments); or, more precisely, what are the dynamics of exchange rates, interest rates, and central bank interventions within exchange rate bands? Does the difference between bands and completely fixed exchange rates matter, and if so, which of the two arrangements is best; or, more precisely, what are the tradeoffs that determine the optimal bandwidth? This article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones, with emphasis on main ideas and results and without technical detail.

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