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Foreign Exchange Market Interventions and the $-¥ Exchange Rate in the Long-Run

  • Joscha Beckmann

    ()

  • Ansgar Belke
  • Michael Kühl

This paper tries to clarify the question of whether foreign exchange market interventions conducted by the Bank of Japan are important for the Dollar-Yen exchange rate in the long-run. Our strategy relies on a re-examination of the empirical performance of a monetary exchange rate model. This is basically not a new topic; however, we put our focus on two new questions. Firstly, does the consideration of periods of massive interventions in the foreign exchange market help to uncover a potential long-run relationship between the exchange rate and its fundamentals? Secondly, do Forex interventions support the adjustment towards a long-run equilibrium value? Our overall results suggest that taking periods of interventions into account within a monetary model does improve the goodness of fit of an identified long-run relationship to a significant degree. Furthermore, Forex interventions increase the speed of adjustment towards long-run equilibrium in some periods, particularly in periods of coordinated Forex interventions. Our results indicate that only coordinated interventions seem to stabilize the Dollar-Yen exchange rate in a long-run perspective. This is a novel contribution to the literature.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0428.

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Length: 33 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:rwi:repape:0428
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  24. Hoshikawa, Takeshi, 2008. "The effect of intervention frequency on the foreign exchange market: The Japanese experience," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 547-559, June.
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