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Perceived central bank intervention and market expectations: an empirical study of the yen/dollar exchange rate, 1993 - 96

  • William Melick

    (Kenyon College)

  • Gabriele Galati

This paper uses a new data set, based on Reuters news articles, to capture intervention that is perceived by FX traders and probability density functions (PDFs) estimated from option data to describe market expectations. We find that, between September 1993 and April 1996, traders viewed the Bank of Japan as responding mainly to deviations of the exchange rate from what they considered to be some implicit target levels. On the other hand, the Federal Reserve was viewed to have mainly intervened when market conditions seemed most conducive to a successful intervention. We find that perceived intervention had no statistically significant effect on the exchange rate level and on the skewness of the PDFs. We also present evidence that, on average, perceived intervention increased traders' uncertainty about future exchange rate movements.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 77.

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Length: 31 pages
Date of creation: Oct 1999
Date of revision:
Handle: RePEc:bis:biswps:77
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  1. Kathryn M. Dominguez, 1993. "Does Central Bank Intervention Increase the Volatility of Foreign Exchange Rates?," NBER Working Papers 4532, National Bureau of Economic Research, Inc.
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