Catherine Bonser-Neal. "Does Central Bank Intervention Stabilize Foreign Exchange Rates? Economic Review, Federal Reserve Bank of Kansas City, Vol. 81, No. 1, First Quarter 1996 (14pp)

Authors

Peter I. Nwaoba, Central Bank of Nigeria

Publisher

Central Bank of Nigeria

Keywords

Central Bank, Central Bank Intervention, Foreign Exchange Rate

Abstract

The paper tried to establish whether central bank intervention could reduce exchange rate volatility by stopping speculative attacks against a currency. The author's concern centered on the fact that exchange rate volatility has increased since the adoption of flexible exchange rate system in 1973 and the subsequent interventions by most central banks. She observed that many European countries have intervened in foreign exchange markets when deemed necessary to reduce volatility and possibly keep exchange rates within a band around a target rate. But opinions still differ on whether these interventions could stabilize exchange rates. The paper, therefore, sought to present empirical evidence suggesting that central bank intervention does not generally reduce exchange rate volatility but appears strongly to have had minimal effect on volatility. This it did by using "implied volatility" to measure exchange rate volatility through the estimation of a model that relates changes in volatility to central bank intervention and other economic variables.

Author Bio

The author is an Economist in the Research Department of Central Bank of Nigeria

Publication Title

CBN Economic and Financial Review

Issue

3

Volume

34

Recommended Citation

Nwaoba, Peter I. (1996). Catherine Bonser-Neal. "Does Central Bank Intervention Stabilize Foreign Exchange Rates?" Economic Review, Federal Reserve Bank of Kansas City, Vol. 81, No. 1, First Quarter 1996 (14pp). CBN Economic and Financial Review. 34(3), 797-800.