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Does transparency in central bank intervention policy bring noise to the FX market? The case of the Bank of Japan

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  • GNABO, Jean-Yves
  • LAURENT, Sébastien
  • LECOURT, Christelle

Abstract

This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on rumors that can emerge. Using the case of Japan, we estimate a dynamic-probit model that explains the main determinants of false reports (i.e. falsely reported interventions) and anticipative rumors (i.e. rumors about future interventions) with reference to the intervention strategy adopted by the central bank for actual and oral interventions, and the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors critically depends on the type of speeches made by officials.
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Suggested Citation

  • GNABO, Jean-Yves & LAURENT, Sébastien & LECOURT, Christelle, 2009. "Does transparency in central bank intervention policy bring noise to the FX market? The case of the Bank of Japan," CORE Discussion Papers RP 2136, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:2136
    Note: In : Journal of International Financial Markets, Institutions & Money, 19, 94-111, 2009
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    File URL: http://dx.doi.org/10.1016/j.intfin.2007.08.008
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    1. Martin D.D. Evans & Richard K. Lyons, 2017. "Order Flow and Exchange Rate Dynamics," World Scientific Book Chapters,in: Studies in Foreign Exchange Economics, chapter 6, pages 247-290 World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Michel Beine & Oscar Bernal & Jean-Yves Gnabo & Christelle Lecourt, 2007. "Intervention Policy of the BoJ: a Unified Approach," LSF Research Working Paper Series 07-19, Luxembourg School of Finance, University of Luxembourg.
    2. Laurent, Sébastien & Lecourt, Christelle & Palm, Franz C., 2016. "Testing for jumps in conditionally Gaussian ARMA–GARCH models, a robust approach," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 383-400.
    3. Beine, Michel & Bernal, Oscar & Gnabo, Jean-Yves & Lecourt, Christelle, 2009. "Intervention policy of the BoJ: A unified approach," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 904-913, May.
    4. repec:eee:reveco:v:51:y:2017:i:c:p:370-390 is not listed on IDEAS
    5. Jean-Yves Gnabo & Jérôme Lahaye & Sébastien Laurent & Christelle Lecourt, 2012. "Do jumps mislead the FX market?," Quantitative Finance, Taylor & Francis Journals, vol. 12(10), pages 1521-1532, October.
    6. Jean-Yves Gnabo & Christelle Lecourt, 2008. "Foreign Exchange Intervention Policy: With or Without Transparency? The Case of Japan," Economie Internationale, CEPII research center, issue 113, pages 5-34.
    7. Oscar Bernal Diaz & Jean-Yves Gnabo, 2007. "Talks, financial operations or both? Generalizing central banks' FX reaction functions," DULBEA Working Papers 07-03.RS, ULB -- Universite Libre de Bruxelles.
    8. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2014. "Does central bank transparency affect stock market volatility?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 362-377.
    9. Kentaro Iwatsubo & Satoshi Kawanishi, 2011. "The Information Improving Channel of Exchange Rate Intervention: How Do Official Announcements Work?," Discussion Papers 1116, Graduate School of Economics, Kobe University.
    10. Robert Dixon & Zhichao Zhang & Yang Dai, 2016. "Exchange Rate Flexibility in China: Measurement, Regime Shifts and Driving Forces of Change," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 875-892, November.

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