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Does Foreign Exchange Intervention Volume Matter?

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Author Info

  • Rasmus Fatum

    (School of Business, University of Alberta)

  • Yohei Yamamoto

    (Department of Economics, Hitotsubashi University)

Abstract

We investigate whether foreign exchange intervention volume matters for the exchange rate effects of intervention. Our investigation employs daily data on Japanese interventions from April 1991 to April 2012 and time-series estimations, non-temporal threshold analysis, as well as binary choice models. We find that intervention volume matters for the effects of intervention, but only to the extent that the exchange rate effect per intervention unit is magnified in a linear sense by the larger intervention amount. This is a policy-relevant finding that also adds to our understanding of how intervention works.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2012-03.

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Length: 34 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:kud:epruwp:12-03

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Keywords: Foreign Exchange Market Intervention; Intervention Volume;

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  1. Michel Beine & Jérôme Lahaye & Sébastien Laurent & Christopher J. Neely & Franz C. Palm, 2007. "Central bank intervention and exchange rate volatility, its continuous and jump components," Working Papers 2006-031, Federal Reserve Bank of St. Louis.
  2. Chih‐Nan Chen & Tsutomu Watanabe & Tomoyoshi Yabu, 2012. "A New Method for Identifying the Effects of Foreign Exchange Interventions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1507-1533, December.
  3. Pierre Perron & Yohei Yamamoto, 2011. "Using OLS to Estimate and Test for Structural Changes in Models with Endogenous Regressors," Boston University - Department of Economics - Working Papers Series WP2011-053, Boston University - Department of Economics.
  4. Beine, Michel & Bernal, Oscar, 2007. "Why do central banks intervene secretly?: Preliminary evidence from the BoJ," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 291-306, July.
  5. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
  6. Michael D. Bordo & Owen F. Humpage & Anna J. Schwartz, 2011. "The Federal Reserve as an Informed Foreign Exchange Trader: 1973 – 1995," NBER Working Papers 17425, National Bureau of Economic Research, Inc.
  7. Neely, Christopher J., 2008. "Central bank authorities' beliefs about foreign exchange intervention," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 1-25, February.
  8. Ito, Takatoshi & Yabu, Tomoyoshi, 2007. "What prompts Japan to intervene in the Forex market? A new approach to a reaction function," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 193-212, March.
  9. Kim, Suk-Joong & Sheen, Jeffrey, 2006. "Interventions in the Yen-dollar spot market: A story of price, volatility and volume," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3191-3214, November.
  10. Christopher J. Neely, 2011. "A foreign exchange intervention in an era of restraint," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 303-324.
  11. Brett Fawley & Luciana Juvenal, 2010. "Japan reenters the foreign exchange market," Economic Synopses, Federal Reserve Bank of St. Louis.
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