Effectiveness of Official Daily Foreign Exchange Market Intervention Operations in Japan
Japanese official intervention in the foreign exchange market is of by far the largest magnitude in the world, despite little or no evidence that it is effective in moving exchange rates. Up until recently, however, official data on intervention has not been available for Japan. This paper investigates the effectiveness of intervention using recently published official daily data and an event study methodology. The event study better fits the stochastic properties of intervention and exchange rate data, i.e. intense and sporadic bursts of intervention activity juxtaposed against a yen/dollar rate continuously changing, than standard time-series approaches. Focusing on daily Japanese and US official intervention operations, we identify separate intervention â€œepisodesâ€ and analyze the subsequent effect on the exchange rate. Using the non-parametric sign test and matched-sample test, we find strong evidence that sterilized intervention systemically affects the exchange rate in the short-run (less than one month). This result holds even when intervention is not associated with (simultaneous) interest rate changes, whether or not intervention is â€œsecretâ€ (in the sense of no official reports or rumors of intervention reported over the newswires), and against other robustness checks. Large-scale (amounts over $1 billion) intervention, coordinated with the Bank of Japan and the Federal Reserve working in unison, give the highest success rate. During the period that the Bank of Japan has reduced interbank rates to 0.5 percent and below (from September 1995), however, only one intervention operation has been coordinated with the Fed and the success rate has been correspondingly low.
|Date of creation:||24 Nov 2003|
|Date of revision:|
|Contact details of provider:|| Postal: Santa Cruz, CA 95064|
Phone: (831) 459-2743
Fax: (831) 459-5077
Web page: http://www.escholarship.org/repec/ucscecon/
More information through EDIRC
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.:
- Svensson, Lars-E-O, 2001.
"The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 277-312, February.
- Lars E.O. Svensson, 2000. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," NBER Working Papers 7957, National Bureau of Economic Research, Inc.
- Svensson, Lars, 2000. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," Seminar Papers 687, Stockholm University, Institute for International Economic Studies.
- Svensson, Lars E O, 2000. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," CEPR Discussion Papers 2566, C.E.P.R. Discussion Papers.
- Rasmus Fatum & Michael M. Hutchison, 2003.
"Is sterilised foreign exchange intervention effective after all? an event study approach,"
Royal Economic Society, vol. 113(487), pages 390-411, 04.
- Rasmus Fatum & Michael M. Hutchison, . "Is Sterilized Foreign Exchange Intervention Effective After All? An Event Study Approach," EPRU Working Paper Series 99-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16, January.
- Glick, Reuven & Hutchison, Michael M., 2000.
"Foreign reserve and money dynamics with asset portfolio adjustment: international evidence,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 10(3-4), pages 229-247, December.
- Reuven Glick & Michael Hutchison, 1994. "Foreign reserve and money dynamics with asset portfolio adjustment: international evidence," Pacific Basin Working Paper Series 94-09, Federal Reserve Bank of San Francisco.
- Takatoshi Ito & V. Vance Roley, 1986.
"News from the U. S. and Japan: Which Moves the Yen/Dollar Exchange Rate?,"
NBER Working Papers
1853, National Bureau of Economic Research, Inc.
- Ito, Takatoshi & Roley, V. Vance, 1987. "News from the U.S. and Japan : Which moves the yen/dollar exchange rate?," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 255-277, March.
- Takatoshi Ito & V. Vance Roley, 1986. "News from the U.S. and Japan: which moves the yen/dollar exchange rate?," Research Working Paper 86-02, Federal Reserve Bank of Kansas City.
- Takatoshi Ito, 2003.
"Is foreign exchange intervention effective? The Japanese experiences in the 1990s,"
in: Monetary History, Exchange Rates and Financial Markets, chapter 5
Edward Elgar Publishing.
- Takatoshi Ito, 2002. "Is Foreign Exchange Intervention Effective?: The Japanese experiences in the 1990s," Discussion Paper Series a428, Institute of Economic Research, Hitotsubashi University.
- Takatoshi Ito, 2002. "Is Foreign Exchange Intervention Effective?: The Japanese Experiences in the 1990s," NBER Working Papers 8914, National Bureau of Economic Research, Inc.
- William Melick & Gabriele Galati, 1999. "Perceived central bank intervention and market expectations: an empirical study of the yen/dollar exchange rate, 1993 - 96," BIS Working Papers 77, Bank for International Settlements.
- Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December.
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
- Ramana Ramaswamy & Hossein Samiei, 2000. "The Yen-Dollar Rate; Have Interventions Mattered?," IMF Working Papers 00/95, International Monetary Fund.
- Glick,Reuven & Hutchison,Michael (ed.), 1994. "Exchange Rate Policy and Interdependence," Cambridge Books, Cambridge University Press, number 9780521461108, November.
- Sarno, Lucio & Taylor, Mark P, 2001.
"Official Intervention in the Foreign Exchange Market: Is It Effective, and, If So, How Does It Work?,"
CEPR Discussion Papers
2690, C.E.P.R. Discussion Papers.
- Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- Reuven Glick & Michael M. Hutchison, 1992.
"Monetary policy, intervention, and exchange rates in Japan,"
Federal Reserve Bank of San Francisco, pages 225-257.
- Reuven Glick & Michael M. Hutchison, 1992. "Monetary policy, intervention, and exchange rates in Japan," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
- Reuven Glick & Michael Hutchison, 1993. "Monetary policy, intervention, and exchange rates in Japan," Pacific Basin Working Paper Series 93-07, Federal Reserve Bank of San Francisco.
- A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
- Rasmus Fatum, 2002. "Post-Plaza intervention in the DEM/USD exchange rate," Canadian Journal of Economics, Canadian Economics Association, vol. 35(3), pages 556-567, August.
- Campbell, Cynthia J. & Wesley, Charles E., 1993. "Measuring security price performance using daily NASDAQ returns," Journal of Financial Economics, Elsevier, vol. 33(1), pages 73-92, February.
When requesting a correction, please mention this item's handle: RePEc:cdl:ucscec:qt3rg5p5j2. 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: (Lisa Schiff)
If references are entirely missing, you can add them using this form.