Conditional Covariances And Direct Central Bank Interventions In The Foreign Exchange Markets

Download or read book Conditional Covariances and Direct Central Bank Interventions in the Foreign Exchange Markets written by Michel A. R. Beine and published by . This book was released on 2003 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, I investigate the effects of central bank interventions (CBIs) on the ex post correlation and covariance of exchange rates. Using a multivariate GARCH model with time-varying conditional covariances, we estimate the effects of CBIs on both the variances and covariance between the yen and the deutsche mark (the Euro) in terms of the U.S. dollar. Our results suggest that coordinated CBIs not only tend to increase the volatility of exchange rates but also explain a significant amount of the covariance between the major currencies. We show that this result can be useful for short-run currency portfolio management.