IDEAS home Printed from https://ideas.repec.org/a/taf/apfiec/v22y2012i12p967-975.html
   My bibliography  Save this article

Heterogeneous behaviours and the effectiveness of central bank intervention in the yen/dollar exchange market

Author

Listed:
  • Chung-Wei Kao
  • Jer-Yuh Wan

Abstract

A nonlinear heterogeneous agent model is applied to the yen/dollar exchange rate market to discuss the channels of an effective central bank intervention. The existence of two hypothetical channels proposed by Hung (1997) and Taylor (2004, 2005) are tested and confirmed. Evidence shows heterogeneous agents are active in the yen/dollar market where the stabilizing force from the fundamentalists declines in large misalignments. Central bank intervention is effective in arousing the trend-reversing sentiment among chartists to prevent market from explosion. The intervention is also effective in strengthening fundamentalists’ confidence that the market will move toward its theoretical equilibrium. The intervention has significant effects on fundamentalists’ confidence, regardless of whether the forecasting method relies on Purchasing Power Parity (PPP) only or on a PPP plus Uncovered Interest rate Parity (UIP) condition. The interest rate differential can affect the exchange rate changes through influencing demand orders of the short-run fundamentalists.

Suggested Citation

  • Chung-Wei Kao & Jer-Yuh Wan, 2012. "Heterogeneous behaviours and the effectiveness of central bank intervention in the yen/dollar exchange market," Applied Financial Economics, Taylor & Francis Journals, vol. 22(12), pages 967-975, June.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:12:p:967-975
    DOI: 10.1080/09603107.2011.633887
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09603107.2011.633887
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Frankel, Jeffrey A & Froot, Kenneth A, 1986. "Understanding the U.S. Dollar in the Eighties: The Expectations of Chartists and Fundamentalists," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 24-38, Supplemen.
    2. Juann H. Hung, 1991. "The effectiveness of sterilized U.S. foreign exchange intervention, an empirical study based on the noise trading approach," Research Paper 9118, Federal Reserve Bank of New York.
    3. Ronald Macdonald & Mark P. Taylor, 1992. "Exchange Rate Economics: A Survey," IMF Staff Papers, Palgrave Macmillan, vol. 39(1), pages 1-57, March.
    4. Edison, H.J., 1993. "The Effectiveness of Central-Bank Intervention: A Survey of the Litterature after 1982," Princeton Studies in International Economics 18, International Economics Section, Departement of Economics Princeton University,.
    5. Menzie D. Chinn & Guy Meredith, 2004. "Monetary Policy and Long-Horizon Uncovered Interest Parity," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 409-430, November.
    6. Juann H. Hung, 1991. "Noise trading and the effectiveness of sterilized foreign exchange intervention," Research Paper 9111, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cifarelli, Giulio & Paladino, Giovanna, 2018. "Can the interaction between a single long-term attractor and heterogeneous trading explain exchange rate behaviour? A nonlinear econometric investigation," MPRA Paper 83894, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:22:y:2012:i:12:p:967-975. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/RAFE20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.