Does transparency in central bank intervention policy bring noise in the FX market?

Résultats de recherche: Contribution à un journal/une revueArticle

Résumé

This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on market perception and on rumors that can emerge. Using the case of the Bank of Japan which has continued to intervene actively and unilaterally in recent years, we estimate a dynamic-probit model that explains the main determinants of CBI rumors in the foreign exchange market. Two sets of determinants are clearly identified: the first is related to the intervention strategy adopted by the central bank (CB) for both actual and oral interventions; the second to the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors depends on the type of speeches made by officials: oral interventions aimed at giving some information on the CB's point of view concerning the exchange rate market generate speculation about the future decisions of the CB, increasing the probability of unrequited interventions, i.e. rumors about future interventions. Conversely, official speeches clarifying the current intervention policy reduce the uncertainty concerning the occurrence of a potential intervention, decreasing the probability of false rumors, i.e. falsely reported interventions.
langue originaleAnglais
Pages (de - à)94-111
Nombre de pages18
journalJournal of International Financial Markets, Institutions and Money
Volume19
Numéro de publication1
étatPublié - 2009

Empreinte digitale

Transparency
Central bank intervention
Rumor
Uncertainty
Central bank
Policy intervention
Speculation
Bank of Japan
Foreign exchange market
Climate
Intervention strategies
Exchange rates
Probit model

Citer ceci

@article{d0dae3bc1adb489ba746c8c8a8080462,
title = "Does transparency in central bank intervention policy bring noise in the FX market?",
abstract = "This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on market perception and on rumors that can emerge. Using the case of the Bank of Japan which has continued to intervene actively and unilaterally in recent years, we estimate a dynamic-probit model that explains the main determinants of CBI rumors in the foreign exchange market. Two sets of determinants are clearly identified: the first is related to the intervention strategy adopted by the central bank (CB) for both actual and oral interventions; the second to the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors depends on the type of speeches made by officials: oral interventions aimed at giving some information on the CB's point of view concerning the exchange rate market generate speculation about the future decisions of the CB, increasing the probability of unrequited interventions, i.e. rumors about future interventions. Conversely, official speeches clarifying the current intervention policy reduce the uncertainty concerning the occurrence of a potential intervention, decreasing the probability of false rumors, i.e. falsely reported interventions.",
author = "Jean-Yves Gnabo and Christelle Lecourt and S{\'e}bastien Laurent",
year = "2009",
language = "English",
volume = "19",
pages = "94--111",
journal = "Journal of International Financial Markets, Institutions and Money",
issn = "1042-4431",
publisher = "Elsevier",
number = "1",

}

TY - JOUR

T1 - Does transparency in central bank intervention policy bring noise in the FX market?

AU - Gnabo, Jean-Yves

AU - Lecourt, Christelle

AU - Laurent, Sébastien

PY - 2009

Y1 - 2009

N2 - This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on market perception and on rumors that can emerge. Using the case of the Bank of Japan which has continued to intervene actively and unilaterally in recent years, we estimate a dynamic-probit model that explains the main determinants of CBI rumors in the foreign exchange market. Two sets of determinants are clearly identified: the first is related to the intervention strategy adopted by the central bank (CB) for both actual and oral interventions; the second to the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors depends on the type of speeches made by officials: oral interventions aimed at giving some information on the CB's point of view concerning the exchange rate market generate speculation about the future decisions of the CB, increasing the probability of unrequited interventions, i.e. rumors about future interventions. Conversely, official speeches clarifying the current intervention policy reduce the uncertainty concerning the occurrence of a potential intervention, decreasing the probability of false rumors, i.e. falsely reported interventions.

AB - This paper empirically investigates the induced effect of a more and less transparent central bank intervention (CBI) policy on market perception and on rumors that can emerge. Using the case of the Bank of Japan which has continued to intervene actively and unilaterally in recent years, we estimate a dynamic-probit model that explains the main determinants of CBI rumors in the foreign exchange market. Two sets of determinants are clearly identified: the first is related to the intervention strategy adopted by the central bank (CB) for both actual and oral interventions; the second to the uncertainty climate of the market captured by two volatility measures. Our results suggest that the induced effect of a transparent CBI policy on market rumors depends on the type of speeches made by officials: oral interventions aimed at giving some information on the CB's point of view concerning the exchange rate market generate speculation about the future decisions of the CB, increasing the probability of unrequited interventions, i.e. rumors about future interventions. Conversely, official speeches clarifying the current intervention policy reduce the uncertainty concerning the occurrence of a potential intervention, decreasing the probability of false rumors, i.e. falsely reported interventions.

M3 - Article

VL - 19

SP - 94

EP - 111

JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

SN - 1042-4431

IS - 1

ER -