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Japanese Foreign Exchange Intervention and the Yen/Dollar Exchange Rate: A Simultaneous Equations Approach Using Realized Volatility

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Author Info
Eric Hillebrand ()
Gunther Schnabl ()
Yasemin Ulu ()

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Abstract

We use realized volatility to study the influence of central bank interventions on the yen/dollar exchange rate. Realized volatility is a technical innovation that allows specifying a system of equations for returns, realized volatility, and interventions without endogeneity bias. We find that during the period 1995 through 1999, interventions of the Japanese monetary authorities did not have the desired effect with respect to the exchange rate level and we measure an increase in volatility associated with interventions. During the period 1999 through 2004, the estimations are consistent with successful interventions, both in depreciating the yen and in reducing exchange rate volatility.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1766.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1766

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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References listed on IDEAS
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  1. Takatoshi Ito & Michael Melvin, 1999. "Japan's Big Bang and the Transformation of Financial Markets," NBER Working Papers 7247, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Christopher J. Neely, 2006. "Identifying the effects of U.S. intervention on the levels of exchange rates," Working Papers 2005-031, Federal Reserve Bank of St. Louis. [Downloadable!]
  3. Hillebrand, Eric, 2005. "Neglecting parameter changes in GARCH models," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 121-138. [Downloadable!] (restricted)
  4. Clive W.J. Granger & Namwon Hyung, 1999. "Occasional Structural Breaks and Long Memory," University of California at San Diego, Economics Working Paper Series 99-14, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
  5. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November. [Downloadable!] (restricted)
    Other versions:
  6. Eric Hillebrand & Gunther Schnabl, 2006. "A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility," Working Paper Series 650, European Central Bank. [Downloadable!]
    Other versions:
  7. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 225-34, April.
  8. Neil Shephard, 2005. "Stochastic Volatility," Economics Papers 2005-W17, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  10. Frenkel, Michael & Pierdzioch, Christian & Stadtmann, Georg, 2005. "The effects of Japanese foreign exchange market interventions on the yen/U.S. dollar exchange rate volatility," International Review of Economics & Finance, Elsevier, vol. 14(1), pages 27-39. [Downloadable!] (restricted)
  11. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June. [Downloadable!]
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  12. Philip Hans Franses & Marius Ooms & Charles S. Bos, 1999. "Long memory and level shifts: Re-analyzing inflation rates," Empirical Economics, Springer, vol. 24(3), pages 427-449. [Downloadable!] (restricted)
    Other versions:
  13. Jonathan Kearns & Roberto Rigobon, 2003. "Identifying the Efficacy of Central Bank Interventions: Evidence from Australia," RBA Research Discussion Papers rdp2003-04, Reserve Bank of Australia. [Downloadable!]
  14. Elena Andreou & Eric Ghysels, 2002. "Detecting multiple breaks in financial market volatility dynamics," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(5), pages 579-600. [Downloadable!]
    Other versions:
  15. Kim, Soyoung, 2003. "Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework," Journal of International Economics, Elsevier, vol. 60(2), pages 355-386, August. [Downloadable!] (restricted)
  16. Wouter J. den Haan & Andrew Levin, 1996. "A Practitioner's Guide to Robust Covariance Matrix Estimation," University of California at San Diego, Economics Working Paper Series 96-17, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
  17. Ole E. Barndorff-Nielsen & Shephard, 2002. "Econometric analysis of realized volatility and its use in estimating stochastic volatility models," Journal Of The Royal Statistical Society Series B, Royal Statistical Society, vol. 64(2), pages 253-280. [Downloadable!] (restricted)
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  18. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 631-53, October. [Downloadable!] (restricted)
    Other versions:
  19. Bonser-Neal, Catherine & Tanner, Glenn, 1996. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 853-878, December. [Downloadable!] (restricted)
  20. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
  21. repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS
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