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Currency intervention and the global portfolio balance effect: Japanese and Swiss lessons, 2003-2004 and 2009-2010

Author

Listed:
  • Petra Gerlach

    (Economic and Research Institute)

  • Robert N McCauley

    (BIS)

  • Kazuo Ueda

    (The University of Tokyo)

Abstract

This paper shows that the Japanese and Swiss foreign exchange interventions in 2003/04 and 2009/10 seem to have lowered long-term interest rates in a range of industrial countries, including Japan and Switzerland. It seems that this decline was triggered by the investment of the intervention funds in US and euro area bonds and that a global portfolio balance effect made this decline in interest rate spread to other markets, thus easing monetary conditions at home and abroad.

Suggested Citation

  • Petra Gerlach & Robert N McCauley & Kazuo Ueda, 2011. "Currency intervention and the global portfolio balance effect: Japanese and Swiss lessons, 2003-2004 and 2009-2010," CARF F-Series CARF-F-264, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  • Handle: RePEc:cfi:fseres:cf264
    as

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    File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/275.pdf
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    References listed on IDEAS

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    1. Fischer, Andreas M., 2006. "On the inadequacy of newswire reports for empirical research on foreign exchange interventions," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1226-1240, December.
    2. Rasmus Fatum & Michael M. Hutchison, 2003. "Is sterilised foreign exchange intervention effective after all? an event study approach," Economic Journal, Royal Economic Society, vol. 113(487), pages 390-411, April.
    3. Christopher J. Neely, 2005. "An analysis of recent studies of the effect of foreign exchange intervention," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 685-718.
    4. Martin Brown & Marcel Peter & Simon Wehrmüller, 2009. "Swiss Franc Lending in Europe," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 64(02), pages 167-181, June.
    5. Ito, Takatoshi & Yabu, Tomoyoshi, 2007. "What prompts Japan to intervene in the Forex market? A new approach to a reaction function," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 193-212, March.
    6. Rasmus Fatum & Michael Hutchison, 2005. "Foreign exchange intervention and monetary policy in Japan, 2003–04," International Economics and Economic Policy, Springer, vol. 2(2), pages 241-260, November.
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    Cited by:

    1. McCauley, Robert, 2013. "Risk-On/Risk-Off, Capital Flows, Leverage and Safe Assets," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(2), pages 145-154.
    2. Ahmed, Jameel & Straetmans, Stefan, 2015. "Predicting exchange rate cycles utilizing risk factors," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 112-130.

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