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Talks, financial operations or both? Generalizing central banks’ FX reaction functions

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Author Info
Oscar Bernal () (DULBEA, Free University of Brussels)
Jean-Yves Gnabo () (University of Namur)

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Abstract

This paper generalizes central banks’ FX interventions reaction functions to include oral interventions alongside actual ones. Using Japanese data for the 1991-2004 period, we estimate an ordered probit explaining the occurrence of each type of intervention and evaluating the extent to which oral and actual interventions are substitutes or complements. Our results indicate that monetary authorities tend to adopt progressively stronger measures as the exchange rate behaves in an increasingly unfavorable way. This suggests that words and acts are used as complements only in extreme cases.

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Paper provided by Université libre de Bruxelles, Department of Applied Economics (DULBEA) in its series Working Papers DULBEA with number 07-03.RS.

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Length: 33 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:dul:wpaper:07-03rs

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Related research
Keywords: Central banks; Foreign exchange market; Interventions; Communication policy;

Other versions of this item:

Find related papers by JEL classification:
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
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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