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Currency intervention and the global portfolio balance effect: Japanese lessons

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  • Gerlach, Petra
  • McCauley, Robert N.
  • Ueda, Kazuo

Abstract

This paper shows that the Japanese foreign exchange interventions in 2003/04 seem to have lowered long-term interest rates in a wide range of countries, including Japan. It seems that this decline was triggered by the investment of the intervention proceeds in US bonds and that a global portfolio balance effect spread the resulting decline in US yields to other bond markets, thus easing global monetary conditions.

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File URL: http://www.esri.ie/pubs/WP442.pdf
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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP442.

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Date of creation: Oct 2012
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Handle: RePEc:esr:wpaper:wp442

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Keywords: exchange/investment/US;

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  1. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
  2. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Working Papers 2005-030, Federal Reserve Bank of St. Louis.
  3. Rasmus Fatum & Michael M. Hutchison, 2003. "Is sterilised foreign exchange intervention effective after all? an event study approach," Economic Journal, Royal Economic Society, vol. 113(487), pages 390-411, 04.
  4. Ben S. Bernanke & Vincent R. Reinhart, 2004. "Conducting Monetary Policy at Very Low Short-Term Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 85-90, May.
  5. Tsutomu Watanabe & Tomoyoshi Yabu, 2011. "The Great Intervention and Massive Money Injection: The Japanese Experience 2003-2004," CARF F-Series CARF-F-266, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  6. Serge Jeanneau & Camilo E Tovar, 2006. "Domestic bond markets in Latin America: achievements and challenges," BIS Quarterly Review, Bank for International Settlements, June.
  7. Robert McCauley, 2005. "Distinguishing global dollar reserves from official holdings in the United States," BIS Quarterly Review, Bank for International Settlements, September.
  8. Robert McCauley & Guorong Jiang, 2004. "Diversifying with Asian local currency bonds," BIS Quarterly Review, Bank for International Settlements, September.
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