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A stopping time approach to assessing the effectiveness of foreign exchange intervention: An application to Japanese data

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  • Kitamura, Yoshihiro

Abstract

I propose a new methodology to assess the effect of foreign exchange (FX) intervention, based on the probability of an FX rate reaching. The variable is the probability of an FX rate reaching a particular threshold before reaching another. Importantly, the probability depends on not only the level, but also the trend and volatility of a current FX rate. When an intervention changes the probability in a desired direction, the intervention is effective. The notable feature of the probability is that it considers both the level and volatility of an FX rate comprehensively, while previous studies have examined these effects of FX intervention separately. Empirical results based on regression and nearest-neighbor analyses applied to Japanese data indicate that publicity and size are significant in the effectiveness of intervention.

Suggested Citation

  • Kitamura, Yoshihiro, 2017. "A stopping time approach to assessing the effectiveness of foreign exchange intervention: An application to Japanese data," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 32-46.
    • Handle: RePEc:eee:jimfin:v:75:y:2017:i:c:p:32-46
    DOI: 10.1016/j.jimonfin.2017.04.005
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    References listed on IDEAS

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    Cited by:

    1. Smita Roy Trivedi, 2020. "The Moses effect: can central banks really guide foreign exchange markets?," Empirical Economics, Springer, vol. 58(6), pages 2837-2865, June.
    2. Kitamura, Yoshihiro, 2020. "A lesson from the four recent large public Japanese FX interventions," Journal of the Japanese and International Economies, Elsevier, vol. 57(C).
    3. Lucía Arango-Lozano & Lukas Menkhoff & Daniela Rodríguez-Novoa & Mauricio Villamizar-Villegas, 2020. "The Effectiveness of FX Interventions: A Meta-Analysis," Borradores de Economia 1132, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Foreign exchange intervention; Nearest-neighbors matching analysis; Probability reaching a threshold;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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