Are Interventions Self-Exciting?

Abstract

It is often argued that interventions provide news on changes in risk premia or in future monetary policy. If so, the timing of interventions offers important information for central bank watchers. One method to study the reaction function of a central bank is to consider whether the duration intervals of past interventions matter for future interventions. The time deformation of interventions is modelled as an autoregressive process following the class of ACD models first proposed by Engle and Russell (1994). The analysis considers the persistence of interventions by the Federal Reserve, the Bundesbank and the Swiss National Bank.

JEL Classification: E52, E58