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Japanese Foreign Exchange Intervention and the Yen/Dollar Exchange Rate: A Simultaneous Equations Approach Using Realized Volatility

  • Eric Hillebrand
  • Gunther Schnabl
  • Yasemin Ulu

We use realized volatility to study the influence of central bank interventions on the yen/dollar exchange rate. Realized volatility is a technical innovation that allows specifying a system of equations for returns, realized volatility, and interventions without endogeneity bias. We find that during the period 1995 through 1999, interventions of the Japanese monetary authorities did not have the desired effect with respect to the exchange rate level and we measure an increase in volatility associated with interventions. During the period 1999 through 2004, the estimations are consistent with successful interventions, both in depreciating the yen and in reducing exchange rate volatility.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-07/cesifo1_wp1766.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1766.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1766
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  8. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  9. repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS
  10. Hillebrand, Eric & Schnabl, Gunther, 2006. "A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility," Working Paper Series 0650, European Central Bank.
  11. Francis X. Diebold & Atsushi Inoue, 2000. "Long Memory and Regime Switching," NBER Technical Working Papers 0264, National Bureau of Economic Research, Inc.
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  21. Christopher J. Neely, 2006. "Identifying the effects of U.S. intervention on the levels of exchange rates," Working Papers 2005-031, Federal Reserve Bank of St. Louis.
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  23. Kim, Soyoung, 2003. "Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework," Journal of International Economics, Elsevier, vol. 60(2), pages 355-386, August.
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