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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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  • Eric Hillebrand
  • Gunther Schnabl
  • Yasemin Ulu

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-07/cesifo1_wp1766.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1766.

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

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  1. 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.
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Citations

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Cited by:
  1. Heijdra, B.J. & Ligthart, J.E., 2005. "Fiscal Policy, Monopolistic Competition and Finite Lives," Discussion Paper 2005-126, Tilburg University, Center for Economic Research.
  2. Marsh, Ian W., 2011. "Order flow and central bank intervention: An empirical analysis of recent Bank of Japan actions in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 30(2), pages 377-392, March.
  3. Eric Hillebrand & Gunther Schnabl, 2008. "A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility," International Economics and Economic Policy, Springer, vol. 5(4), pages 389-401, December.

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