Central Bank Intervention and Exchange Rate Volatility, Its Continuous and Jump Components

We analyze the relationship between interventions and volatility at daily and intra-daily
<br />frequencies for the two major exchange rate markets. Using recent econometric methods to
<br />estimate realized volatility, we employ bipower variation to decompose this volatility into a
<br />continuously varying and jump component. Analysis of the timing and direction of jumps
<br />and interventions imply that coordinated interventions tend to cause few, but large jumps.
<br />Most coordinated operations explain, statistically, an increase in the persistent (continuous)
<br />part of exchange rate volatility. This correlation is even stronger on days with jumps.