publication . Article . 2006

Risk Premium and Central Bank Intervention

Pinar Ozlu;
Open Access
  • Published: 01 Jan 2006 Journal: Central Bank Review, volume 6, issue 1, pages 65-79
Abstract
This study examines the relation between the risk premium and central bank intervention. Forward rates are calculated for the Turkish Lira-USD exchange market and then the effect of central bank intervention on the risk premium is estimated. Using high quality daily intervention data from the Central Bank of Turkey as well as implied forward rates, an MA (21)-GARCH (1,1) model is estimated. Both purchases and sales of US dollars by the Central Bank of Turkey appear to have no effect on the size of risk premium for TL/USD for the free float period. Similar results are found for the managed float period. Empirical support was weak for the theoretical model, with i...
Subjects
Medical Subject Headings: health care economics and organizations
free text keywords: Central Bank Intervention, Risk Premium, jel:C22, jel:E31
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