Official central bank interventions in the foreign exchange markets: a DCC approach with exogenous variables

This paper assesses the impact of official central bank interventions (CBIs) on exchange rate returns, their volatility and bilateral correlations. By exploiting the publication of intervention data by the Bank of England, this study is able to investigate official interventions by a total number of four central banks, while the previous studies have been limited to three banks, namely the Federal Reserve, Bundesbank and Bank of Japan. The results of the existing literature are reappraised and refined. In particular, unilateral CBIs are found to be more successful than coordinated ones. The likely implications of these findings are then discussed.