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On the determinants of "small" and "large" foreign exchange market interventions: The case of the Japanese interventions in the 1990s

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  • Frenkel, Michael
  • Pierdzioch, Christian
  • Stadtmann, Georg

Abstract

During the past 30 years, central banks have often intervened in foreign exchange markets, and the magnitude of their foreign exchange market interventions has varied widely. We develop a quantitative reaction function model that renders it possible to examine the determinants of “small” and “large” interventions. We apply the model to analyzing the intervention policy of the Japanese monetary authorities (JMA) in the yen/U.S. dollar market during the period from 1991 through 2001. To this end, we use recently released official data on the foreign exchange market interventions of the JMA. We find that the JMA tended to conduct large interventions when the yen/U.S. dollar exchange rate drifted away from an “implicit target exchange rate.”
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  • Frenkel, Michael & Pierdzioch, Christian & Stadtmann, Georg, 2004. "On the determinants of "small" and "large" foreign exchange market interventions: The case of the Japanese interventions in the 1990s," Review of Financial Economics, Elsevier, vol. 13(3), pages 231-243.
    • Handle: RePEc:eee:revfin:v:13:y:2004:i:3:p:231-243
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    Cited by:

    1. Hall, Yosuke & Kim, Suk-Joong, 2009. "What drives Yen interventions in Tokyo?: Do off-shore foreign exchange markets matter more than Tokyo market?," Pacific-Basin Finance Journal, Elsevier, vol. 17(2), pages 175-188, April.
    2. Suk-Joong Kim & Jeffrey Sheen, 2018. "Interventions in the Yen-Dollar Spot Market: A Story of Price, Volatility and Volume," World Scientific Book Chapters, in: Information Spillovers and Market Integration in International Finance Empirical Analyses, chapter 3, pages 73-106, World Scientific Publishing Co. Pte. Ltd..
    3. Francisco Ledesma-Rodriguez & Manuel Navarro-Ibanez & Jorge Perez-Rodriguez & Simon Sosvilla-Rivero, 2011. "Implicit bands in the yen/dollar exchange rate," Applied Economics, Taylor & Francis Journals, vol. 43(10), pages 1241-1255.
    4. Hoshikawa, Takeshi, 2008. "The effect of intervention frequency on the foreign exchange market: The Japanese experience," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 547-559, June.
    5. He Li & Zhixiang Yu & Chuanjie Zhang & Zhuang Zhang, 2017. "Determination of China’s foreign exchange intervention: evidence from the Yuan/Dollar market," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 34(1), pages 62-81, March.

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