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

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  • Oscar Bernal Diaz
  • Jean-Yves Gnabo

Abstract

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.

Suggested Citation

  • 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.
  • Handle: RePEc:dul:wpaper:07-03rs
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    References listed on IDEAS

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    14. Ilan Tojerow, 2008. "Industry Wage Differentials Rent Sharing and Gender in Belgium," Reflets et perspectives de la vie économique, De Boeck Université, pages 55-65.
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    16. 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.
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    More about this item

    Keywords

    Central banks; Foreign exchange market; Interventions; Communication policy;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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