Foreign-exchange intervention strategies and market expectations: insights from Japan

Gnabo, Jean-Yves; Teiletche, Jérôme

Gnabo, Jean-Yves; Teiletche, Jérôme (2009), Foreign-exchange intervention strategies and market expectations: insights from Japan, Journal of International Financial Markets, Institutions and Money, 19, 3, p. 432-446. http://dx.doi.org/10.1016/j.intfin.2008.05.002

Type

Article accepté pour publication ou publié

Date

2009-05

Nom de la revue

Journal of International Financial Markets, Institutions and Money

Volume

Numéro

Éditeur

Elsevier

Pages

432-446

Résumé (EN)

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.

Mots-clés

Marchés financiers internationaux; Risk-neutral; Communication policy; Event studies; Central bank interventions; Banques centrales; International finance

JEL

F31 - Foreign Exchange
E44 - Financial Markets and the Macroeconomy
E58 - Central Banks and Their Policies
G15 - International Financial Markets
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes