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Why Did Central Banks Intervene in ERM I? The Post-1993 Experience Peter Brandner and Harald Grech Full Text of this Article (PDF 576K) 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. |
