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A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility

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  • Hillebrand, Eric
  • Schnabl, Gunther

Abstract

While up to the late 1990s Japanese foreign exchange intervention was fully sterilized, Japanese monetary authorities left foreign exchange intervention unsterilized when Japan entered the liquidity trap in 1999. According to previous research on foreign exchange intervention, unsterilized intervention has a higher probability of success than sterilized intervention. Based on a GARCH framework and change point detection, we test for a structural break in the effectiveness of Japanese foreign exchange intervention. We find a changing impact of Japanese foreign exchange intervention on exchange rate volatility at the turn of the millennium when Japanese foreign exchange intervention started to remain unsterilized. JEL Classification: E58, F31, F33, G15

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0650.

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Date of creation: Jun 2006
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Handle: RePEc:ecb:ecbwps:20060650

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Keywords: Change Point Detection; Exchange rate volatility; foreign exchange intervention; GARCH; Japan; Structural Breaks;

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References

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Citations

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Cited by:
  1. Chen, Ho-Chyuan & Chang, Kuang-Liang & Yu, Shih-Ti, 2012. "Application of the Tobit model with autoregressive conditional heteroscedasticity for foreign exchange market interventions," Japan and the World Economy, Elsevier, vol. 24(4), pages 274-282.
  2. Nikkinen, Jussi & Vähämaa, Sami, 2009. "Central bank interventions and implied exchange rate correlations," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 862-873, December.
  3. Calvo-Gonzalez, Oscar & Shankar, Rashmi & Trezzi, Riccardo, 2010. "Are commodity prices more volatile now ? a long-run perspective," Policy Research Working Paper Series 5460, The World Bank.
  4. Eric Hillebrand & Gunther Schnabl & Yasemin Ulu, 2006. "Japanese Foreign Exchange Intervention and the Yen/Dollar Exchange Rate: A Simultaneous Equations Approach Using Realized Volatility," CESifo Working Paper Series 1766, CESifo Group Munich.
  5. Joscha Beckmann & Ansgar Belke & Michael Kuehl, 2013. "Foreign Exchange Market Interventions and the $-¥ Exchange Rate in the Long Run," ROME Working Papers 201307, ROME Network.
  6. DANNE, Christian & SCHNABL, Gunther, 2008. "A role model for China? Exchange rate flexibility and monetary policy in Japan," China Economic Review, Elsevier, vol. 19(2), pages 183-196, June.
  7. Carmen Broto, 2012. "The effectiveness of forex interventions in four Latin American countries," Banco de Espa�a Working Papers 1226, Banco de Espa�a.
  8. Hillebrand, Eric & Schnabl, Gunther & Ulu, Yasemin, 2009. "Japanese foreign exchange intervention and the yen-to-dollar exchange rate: A simultaneous equations approach using realized volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 490-505, July.
  9. Huang, Alex YiHou & Peng, Sheng-Pen & Li, Fangjhy & Ke, Ching-Jie, 2011. "Volatility forecasting of exchange rate by quantile regression," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 591-606, October.

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