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 frequencies for the two major exchange rate markets. Using recent econometric methods to estimate realized volatility, we estimate the two major components of exchange rate volatility, the continuously varying component and a jump component. A small proportion of coordinated interventions affects the temporary (jump) part of the volatility process. Most of those coordinated operations are associated with an increase of the persistent (continuous) part of exchange rate volatility.