Foreign-exchange intervention strategies and market expectations: insights from Japan
This study extends the traditional set of central bank's interventions to include official announcements in order to provide empirical evidence on two pivotal questions: (i) are FX authorities able to influence market expectations with different instruments? (ii) how should interventions be designed to have the greatest impact? Using Japanese data over 1992–2004 and an event-study approach, we estimate the effect of different strategies on the USD/JPY exchange-rate risk-neutral density. Overall, transparent policies (public and oral interventions) appear to be the most effective. Moreover, the effect is greater when policies involve a financial cost (risk) suggesting that simple announcements can only be deemed as an imperfect substitute for actual interventions.
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|Date of creation:||Jul 2009|
|Date of revision:|
|Publication status:||Published in Journal of International Financial Markets, Institutions and Money, 2009, Vol. 19, no. 3. pp. 432-446.Length: 14 pages|
|Contact details of provider:|| Web page: http://www.dauphine.fr/en/welcome.html|
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