Foreign-Exchange Intervention Strategies and Market Expectations: Insights from Japan

Jean-Yves Gnabo, Jérôme Teiletche

Research output: Contribution to journalArticle

Abstract

This study extends the traditional set of central bank's interventions to include offial announcements in order to provide empirical evidence on two pivotal questions: i) are FX authorities able to influence market expectations with dierent 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 eect is greater when policies involve a financial cost (risk) suggesting that simple announcements can only imperfectly substitute for actual interventions
Original languageEnglish
Pages (from-to)432-446
Number of pages15
JournalJournal of International Financial Markets, Institutions and Money
Volume19
Issue number3
Publication statusPublished - 2009

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Foreign exchange intervention
Japan
Intervention strategies
Announcement
Empirical evidence
Public policy
Exchange rate risk
Risk-neutral density
Costs
Event study
Authority
Central bank intervention
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Foreign-Exchange Intervention Strategies and Market Expectations: Insights from Japan. / Gnabo, Jean-Yves; Teiletche, Jérôme.

In: Journal of International Financial Markets, Institutions and Money, Vol. 19, No. 3, 2009, p. 432-446.

Research output: Contribution to journalArticle

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