IDEAS home Printed from https://ideas.repec.org/a/pal/imfstp/v52y2005i1p120-147.html
   My bibliography  Save this article

Why Did Central Banks Intervene in ERM I? The Post-1993 Experience

Author

Listed:
  • Peter Brandner

    (International Monetary Fund)

  • Harald Grech

    (International Monetary Fund)

Abstract

In this paper, we present stylized facts about exchange rate fluctuations and intervention behavior in the Exchange Rate Mechanism I (ERM I), in particular in light of the recent literature on multilateral target zone models. We estimate bilateral exchange rate distributions of the maximum spot rate deviations of six ERM I currencies, explicitly taking the multilateral setting of ERM I into account. In a further analysis, we estimate short-term reaction functions for the central banks of Belgium, Denmark, France, Ireland, Portugal, and Spain by applying a Tobit analysis. The period under review is from August 1993 to April 1998. We use daily exchange rate and intervention data. The exchange rate position in the band (deviation of the deutschemark (DEM) spot rates from the DEM central parity) significantly induces intervention activity. There is less evidence that changes in volatility trigger central bank intervention.

Suggested Citation

  • Peter Brandner & Harald Grech, 2005. "Why Did Central Banks Intervene in ERM I? The Post-1993 Experience," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 120-147, April.
    • Handle: RePEc:pal:imfstp:v:52:y:2005:i:1:p:120-147
    as

    Download full text from publisher

    File URL: http://www.jstor.org/stable/30035951?origin=pubexport
    File Function: main text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pontines, Victor, 2018. "Self-selection and treatment effects: Revisiting the effectiveness of foreign exchange intervention," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 299-316.
    2. Li, He & Zhang, Zhichao & Zhang, Chuanjie, 2017. "China’s intervention in the central parity rate: A Bayesian Tobit analysis," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 612-624.
    3. Chen, Yu-Lun & Gau, Yin-Feng, 2015. "Foreign exchange market intervention and price discovery," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 214-227.
    4. Markus Hertrich, 2022. "Foreign exchange interventions under a minimum exchange rate regime and the Swiss franc," Review of International Economics, Wiley Blackwell, vol. 30(2), pages 450-489, May.
    5. Brandner, Peter & Grech, Harald & Stix, Helmut, 2006. "The effectiveness of central bank intervention in the EMS: The post 1993 experience," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 580-597, June.
    6. Hertrich, Markus, 2020. "Foreign exchange interventions under a one-sided target zone regime and the Swiss franc," Discussion Papers 21/2020, Deutsche Bundesbank.
    7. Chen, Ho-Chyuan & Chang, Kuang-Liang & Yu, Shih-Ti, 2012. "Application of the Tobit model with autoregressive conditional heteroscedasticity for foreign exchange market interventions," Japan and the World Economy, Elsevier, vol. 24(4), pages 274-282.
    8. He Li & Zhixiang Yu & Chuanjie Zhang & Zhuang Zhang, 2017. "Determination of China’s foreign exchange intervention: evidence from the Yuan/Dollar market," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 34(1), pages 62-81, March.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:imfstp:v:52:y:2005:i:1:p:120-147. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.