Abstract:
We study, with daily and monthly data sets, the impact of conventional monetary policy measures such
as interest rates, intervention and other quantitative measures, and of Central Bank communication on
exchange rate volatility. Since India has a managed float, we also test if the measures affect the level of
the exchange rate. Using dummy variables in the best of an estimated family of GARCH models, we find
forex market intervention to be the most effective of all the CB instruments evaluated for the period of
analysis. We also find that CB communication has a large potential but was not effectively used.
