Do Interactions Between Political Authorities and Central Banks Influence FX Interventions? Evidence from Japan

Diaz, Oscar Bernal

doi:10.2139/ssrn.896198

Cited by 8 publications

(13 citation statements)

References 33 publications

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“…Most papers dealing with central banks reaction function (Almekinders, 1995;Ito, 2003;Ito and Yabu, 2004;Kearns andRigobon, 2005 andBernal, 2006) derive it from a loss-function minimization program by assuming specific processes for the exchange rate dynamic (e.g. random walk or auto-regressive processes).…”

Section: Intervention Decisionsmentioning

confidence: 99%

“…Sarno and Taylor, 2001). Specific studies involving the BoJ include Ito (2003), Ito and Yabu (2004) and Bernal (2006), among many others.…”

Section: Empirical Counterparts Of the Intervention Decision Wmentioning

confidence: 99%

“…A first important dimension concerns the determinants of interventions. This has been extensively explored in the empirical literature (Almekinders, 1995;Baillie and Osterberg, 1997;Ito, 2003;Ito and Yabu, 2004;Kearns and Rigobon, 2005;Bernal, 2006 andBernal and. The main results suggest that interventions tend to be conducted to counteract large deviations of the exchange rate from past levels.…”

Section: Introductionmentioning

confidence: 97%

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Intervention policy of the BoJ: A unified approach

Beine

Bernal²,

Gnabo

et al. 2009

Journal of Banking & Finance

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Intervening in the FX market implies a complex decision process for central banks. Monetary authorities have to decide whether to intervene or not, and if so, when and how. Since the successive steps of this procedure are likely to be highly interdependent, we adopt a nested logit approach to capture their relationships and to characterize the prominent features of the various steps of the intervention decision. Our findings shed some light on the determinants of central bank interventions, on the so-called secrecy puzzle and on the identification of the variables influencing the detection of foreign exchange transactions by market traders. Financial support from the Belgian National Fund for Scientific Research (FRFC Program) is gratefully acknowledged. We would like to thank Cinzia Cirillo for computational assistance as well as Agnès Bénassy-Quéré for providing us with estimates of the fundamental exchange rate value. We are also grateful to Gabriele Galati for sharing his dataset that allows to make some cross-checks with our findings. We thank participants of seminars and conference held in Luxembourg, Paris Nanterres and at the Bank of Canada for comments and suggestions, and in particular G. Galati, C. De Souza and R. Miller. The usual disclaimer applies.

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Section: Intervention Decisionsmentioning

confidence: 99%

“…Sarno and Taylor, 2001). Specific studies involving the BoJ include Ito (2003), Ito and Yabu (2004) and Bernal (2006), among many others.…”

Section: Empirical Counterparts Of the Intervention Decision Wmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 97%

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Intervention policy of the BoJ: A unified approach

Beine

Bernal²,

Gnabo

et al. 2009

Journal of Banking & Finance

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“…The results suggest that large deviations of the exchange rate from its past values and the fundamental-equilibrium level cause corrective measures. Furthermore, the leaning-against-the-wind strategy has been generally confirmed (Dominguez and Frankel, 1993;Almekinders and Eijffinger, 1996;Baillie and Osterberg, 1997;Sarno and Taylor, 2001;Ito, 2003;Ito and Yabu, 2007;Bernal, 2006). The role of exchange-rate volatility as a determinant of actual interventions is less clear, although recent advances in the way it is measured may improve the situation (Andersen et al, 2007;Beine et al, 2006;.…”

Section: Interventions On the Foreign-exchange (Fx) Marketsmentioning

confidence: 99%

Announcements, financial operations or both? Generalizing central banks’ FX reaction functions

Bernal

Gnabo²

2009

Journal of the Japanese and International Economies

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“…The empirical literature focuses on the estimation of "intervention reaction functions" to predict the timing and magnitude of interventions, as well as for testing whether or not the motives stated by the authorities for intervening are borne out by the data (Almekinders, 1995;Almekinders and Eijffinger, 1996;Baillie and Osterberg, 1997;Ito and Yabu, 2007;Kearns and Rigobon, 2005;Bernal, 2006;Beine et al, 2007). Annex 1 provides an overview of the empirical literature.…”

Section: The Literature On Foreign-exchange Interventionsmentioning

confidence: 99%

Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting

Mello¹,

Moccero

Gnabo³

2008

OECD Economics Department Working Papers

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The bulk of recent literature on foreign-exchange interventions has overlooked the potential interdependencies that may exist between these operations and the conduct of monetary policy. This is the case even under inflation targeting and especially in emerging-market economies, because central banks often explicitly reserve the right to intervene to calm disorderly markets and to accumulate foreign reserves, and when the exchange rate is perceived as out of step with fundamentals. This paper uses a friction model to estimate intervention reaction functions and the associated marginal effects for Brazil and the Czech Republic since adoption of inflation targeting in these countries in 1999 and 1998, respectively. The main findings are that: i) in both countries interventions occur predominantly to reduce exchange-rate volatility, while in Brazil the central bank also reacts to exchange-rate deviations from medium-term trends; ii) there are strong, asymmetric threshold effects in the reaction functions, and interventions are more likely and of higher magnitudes when they are carried out to depreciate than to appreciate the domestic currency; and iii) interventions seem to take place independently of contemporaneous monetary policy in Brazil, but not in the Czech Republic, where both policies appear to be interrelated.JEL Classification: C24, E52, F31.Keywords: monetary policy; interventions; inflation targeting; friction model; Brazil; Czech Republic. ****** Interdépendance entre politique monétaire et interventions sur le marché du change dans des régimes de ciblage d'inflation: le cas du Brésil et de la République tchèqueLa littérature récente sur les interventions de banques centrales sur le marché des changes a négligé l'interdépendance potentielle qui peut exister entre ces opérations et la politique monétaire. Pourtant, la question de l'interdépendance se pose même lorsque les économies adoptent un ciblage inflation, en particulier pour les pays émergeants, car les banques centrales se réservent, en général, ouvertement le droit d'intervenir pour calmer les désordres de marché, accumuler des réserves, ou réajuster le niveau du taux de change lorsque celui-ci ne semble pas en phase avec les fondamentaux. Cet article utilise un modèle de friction afin d'estimer une fonction de réaction sur le marché du change et les effets marginaux qui y sont associés pour le Brésil et la République Tchèque, à partir du moment où ces deux pays ont adopté un ciblage d'inflation (i.e., respectivement 1999 et 1998). Les principaux résultats sont que : i) les interventions visent principalement à réduire la volatilité du taux de change dans les deux pays, toutefois, la Banque centrale brésilienne réagit également aux déviations du taux de change par rapport à la tendance de moyen terme ; ii) il y a une forte asymétrie dans le comportement des banques centrales : les interventions sont plus importantes et plus probables lorsque la banque centrale doit déprécier plutôt qu'apprécier sa monnaie ; enfin iii) la politique d'interventi...

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Do Interactions Between Political Authorities and Central Banks Influence FX Interventions? Evidence from Japan

Cited by 8 publications

References 33 publications

Intervention policy of the BoJ: A unified approach

Intervention policy of the BoJ: A unified approach

Announcements, financial operations or both? Generalizing central banks’ FX reaction functions

Interdependencies between Monetary policy and Foreign-Exchange Intervention under Inflation Targeting

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