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The Effects of Japanese Foreign Exchange Intervention: GARCH Estimation and Change Point Detection

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Author Info
Eric Hillebrand (Louisiana State University)
Gunther Schnabl (Tuebingen University)

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Abstract

We study the impact of Japanese foreign exchange intervention on the volatility of the yen/dollar exchange rate since the early 1990s based on a GARCH framework. Using daily intervention data provided by the Japanese Ministry of Finance, we show that the success of interventions varies over time. Measured on the total sample between 1991 and 2003 the estimation results for the impact of foreign exchange intervention on the yen/dollar exchange rate volatility are inconclusive. Sub-dividing the sample into yearly sub-periods and into intervention clusters suggests a structural break. From 1991 up to the late 1990s Japanese foreign exchange intervention seems to have increased the volatility of the yen/dollar exchange rate. In contrast in the new millennium, Japa- nese foreign exchange intervention is associated with less exchange rate volatility. Non-arbitrary segmentation by change point detection leads to similar results. The evidence in favour of recent successful Japanese foreign exchange intervention is line with theoretical evidence which implies successful intervention is the case of un-sterilized intervention.

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Paper provided by EconWPA in its series International Finance with number 0410008.

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Length: 36 pages
Date of creation: 27 Oct 2004
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Handle: RePEc:wpa:wuwpif:0410008

Note: Type of Document - pdf; pages: 36. Updated version.
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Related research
Keywords: Japan; Foreign Exchange Intervention; Exchange Rate Volatility; GARCH; Change Point Detection; Liquidity Trap;

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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References listed on IDEAS
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.:
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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. Ronald McKinnon & Gunther Schnabl, 2004. "The Return to Soft Dollar Pegging in East Asia. Mitigating Conflicted Virtue," International Finance 0406007, EconWPA, revised 07 Jul 2004. [Downloadable!]
    Other versions:
  2. Schnabl, Gunther, 2005. "International Capital Markets and Informal Dollar Standards in the CIS and East Asia," Discussion Paper Series 26192, Hamburg Institute of International Economics. [Downloadable!]
  3. Humala, Alberto & Rodríguez, Gabriel, 2009. "Foreign Exchange Intervention and Exchange Rate Volatility in Peru," Working Papers 2009-008, Banco Central de Reserva del Perú. [Downloadable!]
  4. 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. [Downloadable!]
    Other versions:
  5. Gunther Schnabl, 2004. "International Capital Markets, Macroeconomic Stability, and Exchange Rate Stabilization in the CIS and East Asia," International Finance 0410009, EconWPA, revised 01 Mar 2005. [Downloadable!]
  6. Gunther Schnabl & Christian Danne, 2005. "The Changing Role of the Yen/Dollar Exchange Rate for Japanese Monetary Policy," International Finance 0503001, EconWPA. [Downloadable!]
  7. Christopher J. Neely, 2007. "Central bank authorities’ beliefs about foreign exchange intervention," Working Papers 2006-045, Federal Reserve Bank of St. Louis. [Downloadable!]
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