Excessive exchange rate volatility has a deleterious effect on international financial flows, external trade, investment and output. Among others, these economic costs prompt the central bank in emerging countries to contain excessive exchange rate volatility through intervention in the foreign...

In this article we examine the sensitivity of the foreign exchange market to central bank intervention. Using a time varying Markov switching model we separate periods of relatively stable market conditions from volatile periods and look at the dynamic of the causality effect under different...