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FX Intervention in the Yen-US Dollar Market: A Coordination Channel Perspective

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  • Stefan Reitz , Mark P. Taylor

Abstract

The coordination channel has recently been established as an additional means by which foreign exchange market intervention may be effective. It is conjectured that strong and persistent misalignments of the exchange rate are caused by a coordination failure among fundamentals-based traders. In such situations official intervention may act as a coordinating signal, encouraging traders to engage in stabilizing speculation. We apply the framework developed in Reitz and Taylor (2008) to daily data on the yen-US dollar exchange rate and on Federal Reserve and Japanese Ministry of Finance intervention operations. The results provide further support for the coordination channel of intervention effectiveness

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1765.

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Length: 27 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:kie:kieliw:1765

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Keywords: foreign exchange intervention; coordination channel; STR-GARCH model;

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