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The effectiveness of Central Bank intervention: evidence from Turkey

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  • Gulcay Tuna

Abstract

This article investigates the effectiveness of Central Bank intervention on the conditional variance and the mean of the exchange rate returns in Turkey during the float period. The daily exchange rates are studied within an Exponential General Autoregressive Conditional Heteroskedastic (EGARCH) framework. Little evidence is found for the effectiveness of intervention operations. Empirical results suggest that foreign exchange (FX) selling auctions increase exchange rate volatility. However, a reverse causality relationship detected between one-day past sales of FX auctions and exchange rate returns which is supportive of leaning-against-the-wind behaviour of the Central Bank contradicts its announcements. Also the Central Bank of Turkey (CBT) tends to intervene through FX selling auctions when one-day past volatility is higher.

Suggested Citation

  • Gulcay Tuna, 2011. "The effectiveness of Central Bank intervention: evidence from Turkey," Applied Economics, Taylor & Francis Journals, vol. 43(14), pages 1801-1815.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:14:p:1801-1815
    DOI: 10.1080/00036840802676228
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    References listed on IDEAS

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    1. Ana Maria Herrera & Pinar Ozbay, 2005. "A Dynamic Model of Central Bank Intervention," Working Papers 0501, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-1369, December.
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    Cited by:

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    2. Andrés Murcia & Diego Rojas, 2014. "Determinantes de la tasa de cambio en Colombia: un enfoque de microestructura de mercados," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 32(74), pages 52-67, June.
    3. Gabriela Mundaca, 2018. "Central bank interventions in a dollarized economy: managed floating versus inflation targeting," Empirical Economics, Springer, vol. 55(4), pages 1507-1535, December.
    4. Jaromir Benes & Andrew Berg & Rafael Portillo & David Vavra, 2015. "Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework," Open Economies Review, Springer, vol. 26(1), pages 81-108, February.

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