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Talks, financial operations or both? Generalizing central banks' FX reaction functions

  • Oscar Bernal Diaz
  • Jean-Yves Gnabo

This paper generalizes central banks’ FX interventions reaction functions to include oral interventions alongside actual ones. Using Japanese data for the 1991-2004 period, we estimate an ordered probit explaining the occurrence of each type of intervention and evaluating the extent to which oral and actual interventions are substitutes or complements. Our results indicate that monetary authorities tend to adopt progressively stronger measures as the exchange rate behaves in an increasingly unfavorable way. This suggests that words and acts are used as complements only in extreme cases.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series DULBEA Working Papers with number 07-03.RS.

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Date of creation: Feb 2007
Publication status: Published by: ULB, DULBEA
Handle: RePEc:dul:wpaper:07-03rs
Contact details of provider: Web page: http://difusion.ulb.ac.be

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