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Great earthquakes, exchange rate volatility and government interventions

  • Mariko Hatase

    ()

    (Bank of Japan)

  • Mototsugu Shintani

    ()

    (Deaprtment of Economics, Vanderbilt University)

  • Tomoyoshi Yabu

    ()

    (Faculty of Business and Commerce, Keio University)

The Great East Japan Earthquake in 2011, as well as the Great Hanshin-Awaji Earthquake in 1995 and the Great Kanto Earthquake in 1923, resulted in disorderly movements of yen in the foreign exchange market. This paper investigates the exchange rate volatility shift after these three great earthquakes in Japan and examines if similar excess volatility after major earthquakes can also be observed in other countries. In addition, using a unique daily data set from the Great Kanto Earthquake period, the episode with the largest increased volatility among all three great earthquakes, we estimate a reaction function of foreign exchange market intervention, and evaluate the role of government intervention in stabilizing the foreign exchange market during the time of increased uncertainty caused by a large unexpected negative shock in the economy.

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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 13-00007.

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Date of creation: 25 Mar 2013
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Handle: RePEc:van:wpaper:vuecon-sub-13-00007
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Mark Skidmore & Hideki Toya, 2002. "Do Natural Disasters Promote Long-Run Growth?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 664-687, October.
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  11. Firpo, Sergio, 2010. "Identification and Estimation of Distributional Impacts of Interventions Using Changes in Inequality Measures," IZA Discussion Papers 4841, Institute for the Study of Labor (IZA).
  12. Baillie, Richard T. & P. Osterberg, William, 1997. "Central bank intervention and risk in the forward market," Journal of International Economics, Elsevier, vol. 43(3-4), pages 483-497, November.
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  16. repec:spo:wpecon:info:hdl:2441/605 is not listed on IDEAS
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