Foreign exchange market interventions and the $-¥ exchange rate in the long run

Arbeitspapier

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 longrun 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ROME Discussion Paper Series ; No. 13-07

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Foreign Exchange ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Structural exchange rate models ; cointegration ; intervention analysis

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beckmann, Joscha ; Belke, Ansgar ; Kühl, Michael
• Event: Veröffentlichung
• (who): Research On Money in the Economy (ROME)
• (where): s.l.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/98645
• Last update: 10.03.2025, 11:42 AM CET