Foreign-exchange intervention strategies and market expectations: insights from Japan
This study extends the traditional set of central bank's interventions to include official announcements in order to provide empirical evidence on two pivotal questions: (i) are FX authorities able to influence market expectations with different instruments? (ii) how should interventions be designed to have the greatest impact? Using Japanese data over 1992-2004 and an event-study approach, we estimate the effect of different strategies on the USD/JPY exchange-rate risk-neutral density. Overall, transparent policies (public and oral interventions) appear to be the most effective. Moreover, the effect is greater when policies involve a financial cost (risk) suggesting that simple announcements can only be deemed as an imperfect substitute for actual interventions.
Year of publication: |
2009
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Authors: | Gnabo, Jean-Yves ; Teiletche, Jérôme |
Published in: |
Journal of International Financial Markets, Institutions and Money. - Elsevier, ISSN 1042-4431. - Vol. 19.2009, 3, p. 432-446
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Publisher: |
Elsevier |
Keywords: | Central bank interventions Event studies Communication policy Risk-neutral density |
Saved in:
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