Foreign Exchange Market Interventions and the $-¥ Exchange Rate in the Long-Run
AbstractThis paper tries to clarify the question of whether foreign exchange market interventions conducted by the Bank of Japan are important for the Dollar-Yen exchange rate in the long-run. Our strategy relies on a re-examination of the empirical performance of a monetary exchange rate model. This is basically not a new topic; however, we put our focus on two new questions. Firstly, does the consideration of periods of massive interventions in the foreign exchange market help to uncover a potential long-run relationship between the exchange rate and its fundamentals? Secondly, do Forex interventions support the adjustment towards a long-run equilibrium value? Our overall results suggest that taking periods of interventions into account within a monetary model does improve the goodness of fit of an identified long-run relationship to a significant degree. Furthermore, Forex interventions increase the speed of adjustment towards long-run equilibrium in some periods, particularly in periods of coordinated Forex interventions. Our results indicate that only coordinated interventions seem to stabilize the Dollar-Yen exchange rate in a long-run perspective. This is a novel contribution to the literature.
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Bibliographic InfoPaper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0428.
Length: 33 pages
Date of creation: Jul 2013
Date of revision:
Other versions of this item:
- 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.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-10 (All new papers)
- NEP-CBA-2013-08-10 (Central Banking)
- NEP-IFN-2013-08-10 (International Finance)
- NEP-MAC-2013-08-10 (Macroeconomics)
- NEP-MON-2013-08-10 (Monetary Economics)
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