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The design of effective Central Bank interventions: the yen/dollar case

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  • Michel Beine
  • Ariane Szafarz

Abstract

This paper explores the effects of the interventions of the Bank of Japan on the level and volatility of the yen/dollar exchange rate. A special attention is devoted to the prominent features affecting the signal conveyed by these interventions. The results show a clear duality: small unilateral interventions are counterproductive while large and isolated ones influence the foreign exchange market in the desired directions. It is also found that perverse effects are avoided through coordinated operations.

Suggested Citation

  • Michel Beine & Ariane Szafarz, 2003. "The design of effective Central Bank interventions: the yen/dollar case," Working Papers CEB 03-008.RS, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:03-008
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    References listed on IDEAS

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    1. Dominguez, Kathryn M., 1998. "Central bank intervention and exchange rate volatility1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 161-190, February.
    2. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, vol. 83(May), pages 1-10.
    3. Baillie, Richard T. & Humpage, Owen F. & Osterberg, William P., 2000. "Intervention from an information perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 407-421, December.
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    5. Lewis, Karen K, 1995. "Are Foreign Exchange Intervention and Monetary Policy Related, and Does It Really Matter?," The Journal of Business, University of Chicago Press, vol. 68(2), pages 185-214, April.
    6. Frenkel, Michael & Stadtmann, Georg & Pierdzioch, Christian, 2001. "The interventions of the European Central Bank: Effects, effectiveness, and policy implications," Research Notes 01-2, Deutsche Bank Research.
    7. Takatoshi Ito, 2003. "Is foreign exchange intervention effective? The Japanese experiences in the 1990s," Chapters, in: Paul Mizen (ed.), Monetary History, Exchange Rates and Financial Markets, chapter 5, Edward Elgar Publishing.
    8. Popper, Helen & Montgomery, John D., 2001. "Information sharing and central bank intervention in the foreign exchange market," Journal of International Economics, Elsevier, vol. 55(2), pages 295-316, December.
    9. Fatum, Rasmus, 2000. "On the effectiveness of sterilized foreign exchange intervention," Working Paper Series 10, European Central Bank.
    10. Beine, Michel & Benassy-Quere, Agnes & Lecourt, Christelle, 2002. "Central bank intervention and foreign exchange rates: new evidence from FIGARCH estimations," Journal of International Money and Finance, Elsevier, vol. 21(1), pages 115-144, February.
    11. Dominguez, Kathryn M. E., 2003. "The market microstructure of central bank intervention," Journal of International Economics, Elsevier, vol. 59(1), pages 25-45, January.
    12. Baillie, Richard T. & Osterberg, William P., 1997. "Why do central banks intervene?," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 909-919, December.
    13. Baillie, Richard T., 2000. "Central bank intervention," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 225-228, December.
    14. William Melick & Gabriele Galati, 1999. "Perceived central bank intervention and market expectations: an empirical study of the yen/dollar exchange rate, 1993 - 96," BIS Working Papers 77, Bank for International Settlements.
    15. Bonser-Neal, Catherine & Tanner, Glenn, 1996. "Central bank intervention and the volatility of foreign exchange rates: evidence from the options market," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 853-878, December.
    16. Hung, Juann H, 1997. "Intervention strategies and exchange rate volatility: a noise trading perspective," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 779-793, September.
    17. Kim, Suk-Joong & Kortian, Tro & Sheen, Jeffrey, 2000. "Central bank intervention and exchange rate volatility -- Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 381-405, December.
    18. Esaka, Taro, 2000. "The Louvre Accord and central bank intervention: was there a target zone?," Japan and the World Economy, Elsevier, vol. 12(2), pages 107-126, May.
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    Cited by:

    1. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoglu, 2005. "Causes and Effectiveness of Foreign Exchange Interventions for the Turkish Economy," Working Papers 0505, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Eric Hillebrand, 2003. "The Effects of Japanese Foreign Exchange Intervention: GARCH Estimation and Change Point Detection," Departmental Working Papers 2003-10, Department of Economics, Louisiana State University.
    3. Morel, Christophe & Teïletche, Jérôme, 2008. "Do interventions in foreign exchange markets modify investors' expectations? The experience of Japan between 1992 and 2004," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 211-231, March.
    4. repec:dau:papers:123456789/12956 is not listed on IDEAS
    5. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoğlu, 2006. "The effectiveness of foreign exchange interventions under a floating exchange rate regime for the Turkish economy: a post-crisis period analysis," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1371-1388.

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    More about this item

    Keywords

    Central bank intervention; Signalling channel; Foreign exchange market; Exchange rates.;
    All these keywords.

    JEL classification:

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

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