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Official Foreign Exchange Intervention As A Coordinating Signal In The Dollar-Yen Market

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  • Mark P. Taylor

Abstract

I examine the effectiveness of exchange rate intervention within the context of a Markov-switching model for the real dollar-yen exchange rate over the period April 1991-December 2003. The probability of switching between stable and unstable regimes depends nonlinearly upon the amount of intervention, the degree of misalignment and the duration of the regime. I find that intervention increases the probability of stability when the rate is misaligned, and that its influence grows with the degree of misalignment. However, intervention within a small neighbourhood of equilibrium will result in a greater probability of instability. Copyright 2005 Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Pacific Economic Review.

Volume (Year): 10 (2005)
Issue (Month): 1 (02)
Pages: 73-82

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Handle: RePEc:bla:pacecr:v:10:y:2005:i:1:p:73-82

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1361-374X

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Cited by:
  1. Carlo Altavilla, 2008. "The (UN-) stable relationship between the exchange rate and its fundamentals," Applied Economics Letters, Taylor & Francis Journals, vol. 15(7), pages 539-544.
  2. Stefan Reitz & Jan C. Rülke & Mark P. Taylor, 2011. "On the Nonlinear Influence of Reserve Bank of Australia Interventions on Exchange Rates," The Economic Record, The Economic Society of Australia, vol. 87(278), pages 465-479, 09.
  3. Christopher J. Neely, 2007. "Central bank authorities’ beliefs about foreign exchange intervention," Working Papers 2006-045, Federal Reserve Bank of St. Louis.
  4. Reitz, Stefan & Taylor, Mark P., 2008. "The coordination channel of foreign exchange intervention: A nonlinear microstructural analysis," European Economic Review, Elsevier, vol. 52(1), pages 55-76, January.
  5. Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2011. "On the evolution of U.S. foreign-exchange-market intervention: thesis, theory, and institutions," Working Paper 1113, Federal Reserve Bank of Cleveland.
  6. Kathryn M.E. Dominguez & Freyan Panthaki, 2007. "The Influence of Actual and Unrequited Interventions," NBER Working Papers 12953, National Bureau of Economic Research, Inc.
  7. Hailong Jin & E. Kwan Choi, 2013. "China's Profits and Losses from Currency Intervention, 1994-2011," CESifo Working Paper Series 4551, CESifo Group Munich.
  8. Stefan Reitz & M.P Taylor, 2006. "The Coordination Channel of Foreign Exchange Intervention," Computing in Economics and Finance 2006 16, Society for Computational Economics.

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