Central bank interventions and implied exchange rate correlations
This paper examines the effects of the foreign exchange market interventions by the Bank of Japan on the ex ante correlations between the JPY/USD, EUR/USD, and GBP/USD exchange rates. The correlation estimates used in the analysis are derived from the market prices of OTC currency options. The results show that central bank interventions significantly affect the market expectations about future exchange rate co-movements. In particular, we find that interventions tend to temporarily increase the ex ante correlations among the major exchange rates. However, our results also suggest that intervention episodes are associated with lower-than-average levels of exchange rate correlations.
Year of publication: |
2009
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Authors: | Nikkinen, Jussi ; Vähämaa, Sami |
Published in: |
Journal of Empirical Finance. - Elsevier, ISSN 0927-5398. - Vol. 16.2009, 5, p. 862-873
|
Publisher: |
Elsevier |
Keywords: | Implied correlation Interventions Exchange rates Currency options |
Saved in:
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