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Foreign-exchange intervention strategies and market expectations: insights from Japan

  • Gnabo, Jean-Yves
  • Teiletche, Jérôme
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    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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    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/647.

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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
    Handle: RePEc:dau:papers:123456789/647
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