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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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Author Info
Eric Hillebrand () (Department of Economics, Louisiana State University, Baton Rouge, LA 70803, USA.)
Gunther Schnabl () (Department of Economics and Business Administration, Leipzig University, Marschenerstr. 31, 04109 Leipzig, Germany.)

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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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Paper provided by European Central Bank in its series Working Paper Series with number 650.

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Length: 38 pages
Date of creation: Jun 2006
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Handle: RePEc:ecb:ecbwps:20060650

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Related research
Keywords: Japan; foreign exchange intervention; exchange rate volatility; GARCH; change point detection; structural breaks.;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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Full references

Cited by:
(explanations, 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.)

  1. 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 CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Gunther Schnabl & Christian Danne, 2007. "A Role Model for China? Exchange Rate Flexibility and Monetary Policy in Japan," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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