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Market Volatility and Foreign Exchange Intervention

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The First Decade of Living with the Global Crisis

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Abstract

This paper explores unilateral interventions by National Bank of Serbia on RSD/EUR market, conducted over the period from 2004 to 2010 inclusive. We have employed a Markov-switching model that describes the time-varying nature of the exchange rate volatility. The changing nature of volatility may arise due to the process of information arrivals or being liquidity driven, but can also be a consequence of interventions. We found the probability of switching between high-volatility and low volatility states conditioned upon the intervention. The regime switching model proved to be able to indicate correctly the ex ante identified structural breaks that came from intervention policy. Moreover, our study raises doubts that the central bank intervenes also in response of detrimental past exchange rate trends rather than solely in response to excess volatility.

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Acknowledgement

The authors are grateful to the Republic of Serbia Ministry of Education, Science and Technological Development for the funds and support that made this research possible. The data on interventions were supplied by courtesy of the National Bank of Serbia.

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Authors and Affiliations

  1. Faculty of Economics, University of Niš, Trg kralja Aleksandra Ujedinitelja 11, 18000, Niš, Republic of Serbia

    Srđan Marinković & Ognjen Radović

Authors
  1. Srđan Marinković
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  2. Ognjen Radović
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Corresponding author

Correspondence to Srđan Marinković .

Editor information

Editors and Affiliations

  1. Institute of Technology, Eastern Macedonia and Thrace, Kavala, Greece

    Anastasios Karasavvoglou

  2. Faculty of Economics, University of Niš, Niš, Serbia

    Zoran Aranđelović

  3. Faculty of Economics, University of Niš, Niš, Serbia

    Srđan Marinković

  4. Institute of Technology, Eastern Macedonia and Thrace, Kavala, Greece

    Persefoni Polychronidou

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Marinković, S., Radović, O. (2016). Market Volatility and Foreign Exchange Intervention. In: Karasavvoglou, A., Aranđelović, Z., Marinković, S., Polychronidou, P. (eds) The First Decade of Living with the Global Crisis. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-24267-5_12

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